Is Groupon Goods a Daily-Deal Savior or a Low-Margin Distraction?
When Groupon recognized in 2011 that daily deals alone wouldn’t lead it to long-term success, the company started selling discounted products under the Groupon Goods banner.
That business has continued to grow strongly since then, accounting for $151 million in revenue in North America in the first quarter, and $229 million globally. As the Chicago-based daily-deal company prepares to report second-quarter earnings on Wednesday, it’s clear that analysts will be paying close attention to this business segment.
That’s because the Goods unit now represents 38 percent of Groupon’s sales, via discount sales of consumer electronics, jewelry, clothing and other such items from national companies. The rest of the company’s business, of course, focuses on selling discounted services from local merchants.
And while Goods sounds like a good adjunct business, the effort also is fraught with challenges. That includes low margins and expensive incentives, such as free shipping, that is needed to spur adoption. It also puts Groupon smack into indirect competition with Amazon, the behemoth that dominates online retail. On a more operational level, the division also lost its general manager in May, when Faisal Masud left for an e-commerce leadership role at Staples.
In a research note, J.P. Morgan’s Doug Anmuth outlines some concerns: “Groupon Goods growth is strong as the company leverages its large subscriber base, but we believe this is a less differentiated business and we think there are better ways to invest in ecommerce.”
Beyond Goods, here are some other topics to look out for later today when Groupon reports after the markets close:
First: What progress, if any, the company is making on its search for a permanent CEO. Day-to-day operations are currently being overseen by co-founder Eric Lefkofsky, while co-CEO Ted Leonsis leads the CEO search.
Second: Wall Street will be looking to see what percentage of transactions occur on Groupon’s mobile apps, a bright spot in Q1 when it accounted for 45 percent of sales. If that number continues to grow, the company has a clear data point that proves it is becoming increasingly less dependent on its original email-based “push” model.
And third: There’s one financial nugget that often goes unnoticed — Groupon has more than $1 billion in cash. It would be surprising if the temporary leadership team talks about what they might do with it, but it is an important number to watch.
For the whole company, on average, analysts are expecting earnings of two cents per share in the second quarter, on revenue of $606 million.