Schumpeter | Groupon

Deep discount

The online-coupon firm is down but not out

By M.S.L.J.

IT WAS a bad day for Groupon groupies. When the world’s biggest seller of online coupons released its quarterly results on August 13th, they showed net income as $28.4m in the three months before June—not bad compared to the $107.4m loss the company made in the same period a year ago. But shares dropped by more than 19% in after-hours trading. At one point they hit an all time low of $6.05, meaning that the firm has seen the value of its shares decrease by almost 70% since its listing in November. Its market capitalisation has come down from $13 billion to $5 billion. Even for a discount coupon company, this is a steep price drop.

Growth is the main worry. While Groupon’s revenue increased 45% compared to 2011, it only grew 2% sequentially from the first quarter. Investors fear the firm has hit what some call “a growth wall”, and can no longer expand using its current model of offering daily deals on local services, such as massages and pole-dancing lessons.

Other issues also hurt. In March, for instance, its reputation for customer care received a blow when a British regulator warned it about breaching consumer-protection rules. Sales staff are said to be unhappy with changes to their commission earnings. The firm must stay ahead of smaller, more localised rivals such as SweetJack and Wowcher.

Andrew Mason, the company’s chief executive, has already started making changes. Last week he appointed a new head of global sales and operations, Kal Raman. The firm has also launched a new service called Groupon Goods, which offers things like retail goods and movie vouchers (although margins for this new business are lower).

But Mr Mason’s big bet is to turn Groupon into what he calls an “operating system for local commerce”, meaning a platform that offers local merchants all the digital services they need: not just to sell coupons, but manage appointments, process payments and update customer-loyalty programmes. If profits have not been higher, says Mr Mason, it is because his firm has invested a lot in technology.

Groupon is down but not out. After the first internet bubble burst in the early 2000s, Amazon, the online mall, also seemed to be losing its way. Today such doubts are forgotten and Amazon has morphed into a platform for all kinds of e-commerce. With luck, Groupon will follow suit.

Discover more

And it's goodbye from us

The Schumpeter blog is closing down as we engage in some creative destruction at Economist.com

The world's biggest shakedown?

A labyrinthine legal landscape is making it harder than ever for corporate America to stay on the right side of the law, say our correspondents


The politics of price

This week: Surprisingly low oil prices, more bank fines and Chinese antitrust enforcement