GRPN - Groupon

[Jurgis]

I used to use the occasional groupon a few years back... but fuck me did they become the most annoying company. Emails every day from 4 different groupons. Groupon goods, groupon restaurants, group on services...

 

The deals dont seem so good anymore, mostly they are trying to push tatty impulse purchases. If others like me they cut off all ties and never looked at it again.

 

Anecdotally, I haven't used Groupon for years. I'm not on any of their email lists anymore.

 

But even when I used it, it was mostly random purchases that I would not have made otherwise. Not that I complain. E.g. we went to see a hawk show ( http://newenglandfalconry.com/ ) that was fun. Some of the restaurant groupons were OKish.

 

Now that I think about it, it might be fun to look at it again. Though I'm just too busy to wade through the email flow.  ::)

[Sportgamma]

Surprisingly, they are still getting about 65 million visits to their site monthly.

[heth247]

Surprisingly, they are still getting about 65 million visits to their site monthly.

 

Have you checked out their mobile app?  It is doing pretty well. 70% traffic is from mobile.

[given2invest]

The replies are exactly why I think it's interesting.  I'm shocked 10 years after the "fad" it's still this huge business which is now majority mobile and only 20% the "old groupon". 

 

Look at the numbers...it's not at all expensive and when they finish the transformation you could argue it should command a very high multiple.  It's most certainly not a melting ice cube anymore.  The board is well incentivized and they are sellers at the right price.

 

https://www.recode.net/2018/7/7/17532138/groupon-acquisition-buyer-sale

 

Stock was near $5 when this article came out.  The business has not deteriorated 40% since then.  For the most part, they have hit numbers.  Just messy as they cut out unprofitable business.

 

It's also probably great for positioning for a recession. 

[heth247]

The replies are exactly why I think it's interesting.  I'm shocked 10 years after the "fad" it's still this huge business which is now majority mobile and only 20% the "old groupon". 

 

Look at the numbers...it's not at all expensive and when they finish the transformation you could argue it should command a very high multiple.  It's most certainly not a melting ice cube anymore.  The board is well incentivized and they are sellers at the right price.

 

https://www.recode.net/2018/7/7/17532138/groupon-acquisition-buyer-sale

 

Stock was near $5 when this article came out.  The business has not deteriorated 40% since then.  For the most part, they have hit numbers.  Just messy as they cut out unprofitable business.

 

It's also probably great for positioning for a recession.

 

The problem is they are not doing a turnaround, but a transformation, which is supposed to replace their high-margin but obsolete voucher-based business model with low-margin but more frequent buyer-based business model. I think Market is not sure if this will be successful and how long it will takes.

 

[given2invest]

The replies are exactly why I think it's interesting.  I'm shocked 10 years after the "fad" it's still this huge business which is now majority mobile and only 20% the "old groupon". 

 

Look at the numbers...it's not at all expensive and when they finish the transformation you could argue it should command a very high multiple.  It's most certainly not a melting ice cube anymore.  The board is well incentivized and they are sellers at the right price.

 

https://www.recode.net/2018/7/7/17532138/groupon-acquisition-buyer-sale

 

Stock was near $5 when this article came out.  The business has not deteriorated 40% since then.  For the most part, they have hit numbers.  Just messy as they cut out unprofitable business.

 

It's also probably great for positioning for a recession.

 

The problem is they are not doing a turnaround, but a transformation, which is supposed to replace their high-margin but obsolete voucher-based business model with low-margin but more frequent buyer-based business model. I think Market is not sure if this will be successful and how long it will takes.

 

It's in it's 3rd or 4th year though (the transformation).  Less than 20% is now the voucher business.  Majority of biz is mobile.  The bottom line #s are getting BETTER not worse.  People too focused on top line and quarterly results.  There are huge synergies to a strategic buyer too.  I think your margin of safety is very very big at $3.

 

I think growth/tech people hate it cause no top line and value guys hate it cause ex stock based comp it's not "cheap".  So it lingers.

[heth247]

It's in it's 3rd or 4th year though (the transformation).  Less than 20% is now the voucher business.  Majority of biz is mobile.  The bottom line #s are getting BETTER not worse.  People too focused on top line and quarterly results.  There are huge synergies to a strategic buyer too.  I think your margin of safety is very very big at $3.

 

I think growth/tech people hate it cause no top line and value guys hate it cause ex stock based comp it's not "cheap".  So it lingers.

 

What do you mean by "20% is voucher business"?  I thought 20% is meant for email-based. The majority of their "local" gross profit is still based on voucher (whether you show it on your phone or print it out). That is why they want to come up with G+ to get rid of the voucher.  In my area, only 4 offers are available for G+, which is voucherless. All others voucher-based.

[given2invest]

It's in it's 3rd or 4th year though (the transformation).  Less than 20% is now the voucher business.  Majority of biz is mobile.  The bottom line #s are getting BETTER not worse.  People too focused on top line and quarterly results.  There are huge synergies to a strategic buyer too.  I think your margin of safety is very very big at $3.

 

I think growth/tech people hate it cause no top line and value guys hate it cause ex stock based comp it's not "cheap".  So it lingers.

 

What do you mean by "20% is voucher business"?  I thought 20% is meant for email-based. The majority of their "local" gross profit is still based on voucher (whether you show it on your phone or print it out). That is why they want to come up with G+ to get rid of the voucher.  In my area, only 4 offers are available for G+, which is voucherless. All others voucher-based.

 

Yah I meant email.  My main point is Groupon peaked many many years ago and has been known as a joke for many many years yet the #s are very robust.  This isn't the yellow pages.  And the yellow pages had no new biz plan.

[heth247]

It's in it's 3rd or 4th year though (the transformation).  Less than 20% is now the voucher business.  Majority of biz is mobile.  The bottom line #s are getting BETTER not worse.  People too focused on top line and quarterly results.  There are huge synergies to a strategic buyer too.  I think your margin of safety is very very big at $3.

 

I think growth/tech people hate it cause no top line and value guys hate it cause ex stock based comp it's not "cheap".  So it lingers.

 

What do you mean by "20% is voucher business"?  I thought 20% is meant for email-based. The majority of their "local" gross profit is still based on voucher (whether you show it on your phone or print it out). That is why they want to come up with G+ to get rid of the voucher.  In my area, only 4 offers are available for G+, which is voucherless. All others voucher-based.

 

Yah I meant email.  My main point is Groupon peaked many many years ago and has been known as a joke for many many years yet the #s are very robust.  This isn't the yellow pages.  And the yellow pages had no new biz plan.

 

My understanding is that from 2015-2017, they are in "turnaround" mode, cutting the excess fat and shrink to profitability. But starting from 2018, they are in "transformation" mode, trying to change their business model from voucher-based flash deal to a "utility" that is used more frequently by people. Whether that will be successful remains to be seen.

 

[Sportgamma]

I haven't been following Groupon at all and haven't looked at the fundamentals in detail. However, a short glance at the numbers does pique my interest.

 

I find it interesting that Walmart has been buying rather disparate online assets recently and it would not surprise me if other conventional retailers will follow suit to a larger degree.

 

Time to dig in, I guess.

 

 

[given2invest]

I'd start with the last shareholder letter (which is actually the first one ever written) and go from there.

[heth247]

I'd start with the last shareholder letter (which is actually the first one ever written) and go from there.

 

Given2invest, couple of questions for you:

1. When you say the margin of safety at $3 is very big, can you quantify it?

2. What do you think the catalyst is and how long will it take? If it is a buyout, will somebody buy a business in the middle of transformation?

 

thanks.

[Sportgamma]

I'd start with the last shareholder letter (which is actually the first one ever written) and go from there.

 

The letter was ok, I found. Focus on operational metrics but vague on the financials. Perhaps it is just that a certain Edward kind of ruined the word transformation for me.

 

That being said, the strategy outlined in the letter makes sense. Owning the relationship with the customer should be much more valuable than the legacy business. It all comes down to execution though and I assume that sounds very scary to many investors.

 

Take a look at this offer for example: https://www.groupon.com/deals/ga-fleetway-travel-rome-amalfi-7

• If they want to own the relationship with the customer, why on earth are they placing ads to some super shady comparison site on the product page? This is beyond stupid.
  
• If you scroll down to the reviews, the top review begins with (and I kid you not) "My friend and I had such a great time in Barcelona" (this is a trip to Italy...).
  
• Scrolling further down, we get to the Other Recommended Products. Again, this is a 7-day package to Italy. Groupon decides to show me hotels in Las Vegas, Niagara Falls and Dallas...why?
  

 

I'm not sure if I should see this as a negative or a positive. Perhaps the fact that they are screwing up the 101 stuff of eCommerce means that they have a lot of runway left to extract gains out of the transformation?

[given2invest]

I'd start with the last shareholder letter (which is actually the first one ever written) and go from there.

 

Given2invest, couple of questions for you:

1. When you say the margin of safety at $3 is very big, can you quantify it?

2. What do you think the catalyst is and how long will it take? If it is a buyout, will somebody buy a business in the middle of transformation?

 

thanks.

 

1)  It's not expensive.  You can see what the FCF guidance is for this year and the EV.  Note there will be a nice influx of working capital on year end balance sheet.  I think the safety is there because the #s have not been bleeding the last few years as the core biz/email biz has obviously fallen off a cliff.  The numbers and page views don't seem like a biz that's about to implode.  It's just stagnant with a "free option" on them transforming the biz.

 

2)  Catalyst is either a PE buyout (this fits perfectly with PE...can put a little leverage on it, take it out of public eye for 3-4 years, then bring public again or sell to strategic) or just sell to strategic.  I mean they were looking to sell company when it was trading at $5 last summer.  It's now $3.  There is net cash.  The other catalyst would be people see the transformation working and put a huge multiple on "newco". 

 

I also think this biz works better in a recession than most.  Both businesses would need them more and consumers would gravitate towards it.

[JayGatsby]

https://www.wsj.com/articles/activist-investors-circling-groupon-as-shares-slump-11567122646

 

This company is horribly managed, but the revenue is there should be value. Seems like a company like booking.com would automate everything, fire the goofy sales force, and get a really good return at these prices?

 

I always lose money betting on stuff like this though ha.

[given2invest]

I like GRPN a lot here.  I talk about the long thesis here:

 

 

And yes, I was long and wrong before but I did not own it in Feb when it blew up and didn't re-enter until July.

[ratiman]

Interesting idea. The GME situation shows that there might be hidden value in these brands if the legacy business is shut down. Reverse splits also can depress stocks for a while afterwards.

[given2invest]

Did another video on GRPN.  I'm linking it to where I start discussing it.

 

[mattone]

Regarding the transformation to a more frequent usage - they have been trying various things over time, including increasing usage/frequency. It seems a pretty hard thing to pull off, changing behaviour of the consumer (Groupon is now your daily local business booking tool vs flash deal site it was beforehand). Also, what kind of take rates will GRPN achieve as frequency goes up and discounting goes down?

 

[given2invest]

Regarding the transformation to a more frequent usage - they have been trying various things over time, including increasing usage/frequency. It seems a pretty hard thing to pull off, changing behaviour of the consumer (Groupon is now your daily local business booking tool vs flash deal site it was beforehand). Also, what kind of take rates will GRPN achieve as frequency goes up and discounting goes down?

 

I mean, yah, your million dollar question.  Of course I don't know the answer.  But they are running tests in a few cities in just a few categories to figure this out.  Market won't care if take rates go down a lot if they ever show growth again.  But the real opportunity right now is COVID rebound + a possible M&A transaction.