On November 4, Groupon, the online, daily deals behemoth, went public. The IPO (Initial Public Offering) was valued at $12.7 billion when it hit the NASDAQ. Groupon Inc. released 35 million shares of stock, valued at $20 a share. No company has posted such impressive numbers since Google went public back in August of 2004. Now Groupon will have to compete against accomplished companies such as Google, Amazon, LivingSocial, and other smaller firms if they want to survive and thrive. While Groupon’s creative business model has consumers buzzing, it also has investors worrying about where the profits will be coming from.
Concerns for the Long Term
When Groupon’s value jumped by $4 billion in its public debut, experienced investors didn’t get overly excited. Kathleen Shelton Smith, Principal of Renaissance Capital (which runs IPOhome.com), says that the first day of trading is typically more about supply and demand. Fundamentals will take over in the long run. The problem with Groupon is not their business plan, but the fact that their business plan can be very easily copied. Google attempted to buy Groupon for $5.3 billion at the end of last year, but had their offer rejected. Google then moved to create their own version of the daily deal machine (Google Offers). Although Groupon paved the way for the daily deal service, there’s nothing that’s keeping competitors from coming in to take over.
Groupon makes money by sending out e-mails to their subscribers, filling them in on a variety of daily deals. The company then splits profits with the merchants. It doesn’t help that the global economy is struggling right now, but with the holiday season coming up, Groupon Inc. executives are expecting profits to soar, thus resulting in very satisfied investors.
Groupon Mobile Disconnect?
In an effort to quell the whirlwind of doubt regarding the success of their business, Groupon released a mobile app, Groupon Now, to allow customers to find local deals while on the go. Unfortunately, this now six month old mobile effort has seen nothing but a decrease in profits. This slide can be attributed to the fact that merchants are making far less money and the customer’s average discount is on average, 15 percent less than it would be if they used the main service.
Groupon is constantly working to expand partnerships with merchants, and to provide better deals for customers. Now that Groupon has gone public we will have access to their quarterly reports, and will have a better grasp on what the company is doing as it heads into the future. While the company has big time brand recognition going for it, some prudent investors are maintaining a ‘wait and see’ attitude on Groupon’s performance.