Groupon holding up against stiff competition
But can it control its marketing expenses?
The big question when it reports earnings on Feb. 8 is whether Groupon has reined in its marketing expenses. Those costs stood at around 55% of its net revenues for January to September 2011. Groupon leads the daily-deal market and shares this space with players such as LivingSocial and Google (GOOG) Offers.
Groupon's new ventures need to perform
Groupon's new ventures like Getaways and Groupon Now will be crucial for future growth, especially as the daily-deals segment becomes more saturated with competitors. Unfortunately, Groupon Now has not yet managed to garner the position Groupon desired, contributing just 1% to the company's total value, by our estimates.
While they may not have a material impact on Q4 2011 results, loyalty-building programs like Groupon Rewards would increasingly assume importance as competitors like Google Offers expand further in 2012.
Meanwhile, Rue La La, an online retailer, shut down its daily-deals business following in the footsteps of Facebook. This might be just a beginning to the consolidation of the daily-deals industry in 2012 and would only increase as companies increasingly find it costly to manage a large sales force.
For Groupon as well, it will be interesting to see the extent to which it has curtailed its marketing and administrative expenses for Q4 2011. The company has pitched its revenue growth story to investors for a long time now, but their patience to see Groupon become profitable may soon run out.
We recently launched coverage of Groupon with a $13 price estimate. Refer our note on why Groupon's valuation has fluctuated significantly over the past two years.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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