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Groupon's Improving Business Makes It a Good Long-Term Holding

August 24, 2014 | About:

Day-by-day deals site Groupon (NASDAQ:GRPN) shot up after Priceline (PCLN) advertised that it is getting online reservation service supplier Opentable. Due to this, Groupon will need to face one less adversary in an industry where rivalry has been warming up recently.

Priceline's declaration comes as a welcome alleviation for investors, as Groupon has been battered severely this year. The everyday deals player has lost value in 2014. At the same time, is there any desire for the organization going ahead? We should figure out.

Blended results

Groupon has been sailing through agitated waters for a long while, and the situation worsened when it reported its first-quarter results. Despite the fact that revenue increased considerably, beating analysts' estimates, losses broadened year-over-year. Revenue for the quarter increased 26% to $758 million from. Be that as it may, its loss extended to $37.8 million from last year's loss of $4 million.

Then again, some analysts are positive with respect to Groupon's prospects. Barrington research calls it as one of the fastest developing companies ever, and believes that it will bob once again to new heights due to portable development. Give us a chance to see if Groupon can really figure out how to convey development going ahead.

The positive side

Groupon's loss enlarged as the organization increased its promoting expense considerably year-over-year. Its neighborhood commercial center now has in excess of 200,000 deals, and the organization is busy spreading awareness. Additionally, Groupon's universal business has also gotten to be stable, and is showing signs of recovery.

Truth be told, its global business has been the main thrust behind revenue development. Also, Groupon's acquisition of Ticket Monster last year is ending up being a key driver for its worldwide business.

For the past one year, one of Groupon's essential goals has been to stabilize its business in Europe, the Middle East, and Africa (EMEA), which was falling apart since 2012. Its efforts have at long last paid off as Groupon has now reported four consecutive quarters of billings development. In addition to different regions, Groupon is seeing high development rate in Asia, with a 123% increase in its business. This was for the most part determined by the acquisition of Ticket Monster last year.

Administration has three key objectives lined up for fiscal 2014. First, it will be quickening nearby development in North America and abroad. Second, the organization plans to enhance the gross margin and its operating effectiveness. Lastly, Groupon is striving to attain further stability in its worldwide operations and lessen its losses in different regions of the world.

Groupon expects its North American business to be level in the second quarter, yet going ahead, it anticipates an increasing speed in the twofold digits by the year-end. Its EMEA business declined in the first quarter sequentially, essentially because of request discounts. Anyhow, this was a part of its showcasing strategy to pull in more customers. Looking ahead, Groupon expects steady progress in its EMEA business with neighborhood billings coming back to strong development before the year's over.

Margin change initiatives

Groupon is increasing the quantity of drop ship items, separated from increasing units per request. An increase in drop shipping means that the organization will need to pay less to intermediaries to transfer the products, prompting a change in the gross margin.

It has also transformed its free shipping threshold from $19.99 to $24.99, and is shifting more fulfillments to it distribution focus in Kentucky. These initiatives should result in significant change in its business in North America by the second quarter. Indeed, administration believes that these moves will twofold its gross margin by the year-end.

Priceline is presently a risk

Given the increasing rivalry in the industry, it is imperative for Groupon to keep enhancing its operational productivity. While investors may imagine that Priceline's acquisition of Opentable is uplifting news for Groupon, it may offer rise to more rivalry instead. Priceline is a lodging and flight reservations organization, so the acquisition of Opentable, a restaurant reservation player, makes perfect sense.

Presently, Priceline is further increasing its arrive at through the Opentable acquisition, which it plans to purchase for $2.6 billion, an incredible premium of 46%. This move will further bolster its position in the industry. Opentable seats in excess of 15 million diners consistently at more than 31,000 restaurants across the world. It has seated more than 125 million individuals all around through its versatile stage just in just six years.

So, Priceline can use this solid establishment to intensify its presence in the restaurant reservations space, which comes as a characteristic expansion to flight and lodging bookings. This will be a danger for Groupon, which may see a drop in day by day deals for restaurants going ahead.


Groupon may see some short-term weakness in the bottom line, however it should enhance over the long haul. The stock is presently exchanging around its 52-week low, and considering that its bottom line is relied upon to develop at a compound yearly development rate of 26% for the following five years, it may end up being a decent purchase.

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