More share buttons
Share on Pinterest

Online local commerce marketplaces operator Groupon may be soon holding its biggest sale ever: itself. That’s according to rumors that circulated over the weekend in the media.

Who could buy Groupon? Alibaba, the Chinese online and mobile commerce company. But while Groupon is a good fit for Alibaba, it isn’t worth the price.

Alibaba’s interest in Groupon dates back to February 2016. That’s when Alibaba was buying shares of Groupon, as investors were shunning it—disclosing a 5.60% stake in the e-mcommerce marketplace.

Obviously, Alibaba saw something in Groupon other investors are missing. Like the company getting its business model right.

Groupon’s early business model helped consumers get generous discounts for different product and services, provided that a sufficient number of consumers signed up to take advantage of the discount.

But when that business model didn’t work, Groupon changed it, offering standard discounts to products listed on its site, regardless of the number of consumers participating in the offering.

Meanwhile, the company streamlined its operations, focusing on its lucrative North America market.

These moves seemed to have worked, as evidenced by the turnaround in the company’s operating margins—see tables.

These moves seemed to have worked, as evidenced by the turnaround in the company’s operating margins—see tables.

Groupon’s Financial Metrics 7/9/2018

Forward PE Operating Margin Qrtrly Revenue Growth (yoy) Qrtrly Earnings Growth (yoy)
16.96 1.56% -7.0%

Groupon’s Financial Metrics 2/16/2016

Forward PE Operating Margin Qrtrly Revenue Growth (yoy) Qrtrly Earnings Growth (yoy)
127.50 -0.58% 3.80%

Groupon’s Financial Metrics 11/6/2015

Forward PE Operating Margin Qrtrly Revenue Growth (yoy) Qrtrly Earnings Growth (yoy)
-2.33% -5.70%

Source: Finance.yahoo.com

Alibaba’s Financial Metrics 2/16/2016

Forward PE Operating Margin Qrtrly Revenue Growth (yoy) Qrtrly Earnings Growth (yoy)
2.97 28.65% 31.90% 110.50%

Source: Finance.yahoo.com

Financial markets have taken notice. Over the last year, Groupon’s shares have gained close to 30%.

Company 2-year Price Change Operating Margins Market Cap
Alibaba 137.78% 27.89% 496.10B
Groupon 30.95 1.56 2.59B

But Alibaba must have seen a couple of more things in Groupon’s profile that encouraged tying the knot between them.

One of them was the fact that Groupon’s business model supplemented Alibaba’s business model nicely, providing a good marketing platform for merchants who list their products on Alibaba’s site.

Meanwhile, Groupon had the potential to help Alibaba expand its presence in North America, the company’s core market. Because Alibaba Group Holding is a well-known brand — in China, that is — but has yet to gain brand recognition outside its home country.

Despite all that, Groupon may not be worth the price—currently close to $3 billion, including debt. For a good reason: its model isn’t sustainable. For one thing for a couple of reasons. Groupon is selling other companies’ products, that have the upper hand in bargaining promotion deals.

Then too, there’s plenty of competition from direct offerings from other web-based companies with a broad user base — like Google, Amazon, Yahoo, and Expedia.

And finally, there is the product nature of Groupon deals.

Most offers fall in the discretionary category—like club memberships and cruises rather than must-have items like dental paste and laundry detergents. This means that Groupon must spend heavily on advertising

to push these products and services on the top of their list.

That certainly has a negative impact on company profitability.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

DON’T MISS OUT!
Subscribe To Our Newsletter
Be the first to get latest updates and get tips for visiting exhibitions in Asia.
Stay Updated
Give it a try, you can unsubscribe anytime.

SPECIAL OFFER!

Get $50 off with Coupon Code
GET MY OFFER!
We’ve a Special Offer today!

 Get the Code and Save $100

GET COUPON
DON’T MISS OUT!
Subscribe To Newsletter
Be the first to get latest updates and exclusive content straight to your email inbox.
Stay Updated
Give it a try, you can unsubscribe anytime.
Join the
GREATEST
MAILING LIST
Be the part of
Smart Email Marketing
JOIN TODAY
X