Groupon Steps Up Acquisitions
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- While
Groupon
's
(GRPN) - Get Report
revenue growth for 2011 was strong, the company's expenses were worrisome.
Groupon's aggressive sales force growth this year has resulted in its total selling, general and administrative expenses at about 50% of its net revenues at $813 million. Going by recent trends, Groupon is now focusing on improving its social shopping technologies and hopes to increase the number of Groupons sold on a per subscriber basis. Groupon leads the daily deal market and competes in this with players such as LivingSocial and
(GOOG) - Get Report
Offers.
See our full analysis for Groupon
here.
Acquisition Spree Continues
After directing most of its acquisitions towards acquiring similar daily deal clones, Groupon's purchases have now shifted to buying tech start-ups that would add to its user engagement.
After the Mertado and Campfire Labs acquisition, the most recent one was Adku, a start-up focused on building algorithms to optimize a user's online shopping experience. Getting a user to stick and buy more Groupons would be of paramount importance to Groupon in 2012, given that its mature North American business is already facing a decline in the number of Groupons sold per subscriber.
It's no wonder then that Groupon itself has changed the way it reports users, shifting from the number of e-mail subscribers to "active customers," i.e. users who have bought a Groupon at least once in the last year.
It seems that competitive pressures and merchant complaints have taken their toll on the company. Groupon's overall take rate, defined as the ratio of its net revenues to its gross billings, has declined from around 42% in 2010 to roughly 40.5% last year.
While the company may attribute it to a change in the "deal mix", we expect that take rates will continue to face a downward pressure, especially if Groupon does not make a conscious shift to
merchants who have low marginal costs.
We have updated our analysis for
Groupon with a $12.55 price estimate . The update has been made based on our adjustments to the company's revenue, margin, and take rate forecasts, as well as changes to the company's net cash/debt position.
Refer our
note on why Groupon's valuation has fluctuated significantly over the past two years.
Click
to find out how a company's products impact its stock price at Trefis.
Like our charts? Embed them in your own posts using the
.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
