- Tremendous growth foreseen in the e-commerce space in the next few years.
- Groupon to face tough competition from industry majors Amazon and eBay.
- Groupon’s e-commerce revenue as percent of total revenue is trending higher, implying a strong start to its e-commerce business.
The growth in e-commerce over the past few years has been tremendous. In the year 2013, B2C (Business to consumer) sales crossed $1.2 billion worldwide. Companies like Amazon and eBay, which have been in this industry for the past many years, account for a major market share in this space. According to a report by Goldman Sachs, the combined market share of Amazon and eBay in the year 2013 was around 35 percent. Many companies are turning their attention to the e-commerce space as they foresee good amount of growth in this sector in the nearby future. One such company is Groupon (NASDAQ:GRPN).
Groupon has, till recently, largely been relying on coupons for its revenue. However, seeing the dying nature of the coupon industry, Groupon is actively diversifying its business. Coupons and daily deals are the main source of revenue for the company but it is trying to move beyond it. The company is focusing on mobile commerce and local merchants. As the customer base of Groupon is pretty large, it will be easier for the company to get a head start in the e-commerce business. As per the recent quarter Q2 2014, the company had 53.2 million customers worldwide, an increase of 25 percent YoY growth. The subscriber base of the company has crossed 200 million.
As the internet is growing day by day, people are shifting to online shopping. In the year 2013, e-commerce sales (Business-to-consumer) clocked $1.25 trillion worldwide and the peak is still far away. The 2013 numbers represented a 19% YoY growth. This implies global e-commerce is growing at a superb pace. Mobile commerce is also growing fast coming in at $38 billion for 2013. Groupon has actively diversified into the e-commerce space but gaining market share in this segment, with competitors like Amazon and eBay, will surely be an uphill task for Groupon. Amazon has around 244 million active customers while eBay has around 110 million. The only positive for Groupon here, is that the customer base (or active customers) of the company is huge and is trending higher. Active customers of Groupon at the end of June 2014 stood at around 53 million, an increase of 25 % YoY. The company’s most likely target will be to shift this customer base to its e-commerce service.
Groupon has been clocking revenues of more than $500 million since Q1 2012. In the second quarter of 2014, the company generated $751.6 million of net revenue, an increase of 23 % YoY. At the end of the second quarter, the company had cash and cash equivalents of $868.1 million. The company’s rest of the world business saw an uptick in the previous quarter. Consolidated units sold by Groupon touched 83 million, an increase of 79% YoY while rest of the world unit growth came in at 340% YoY.
Groupon is diversifying into e-commerce due to the dying coupons industry. In the second quarter of 2014, Groupon generated $402.6 million sales from the goods division, an increase of 66.4% YoY. The revenue made from goods surpassed revenue from coupons in the final quarter of 2013. CEO of Groupon, Eric Lefkofsky said, “Our marketplace continues to gain traction and add to our growth; we reached another all-time high in mobile, and with the launch of Gnome, we believe we’re making great strides in connecting local commerce.”
Groupon segmental revenue
Ecommerce revenue accounted for 53.5 % of the total revenue in the second quarter of 2014. The goods revenue as percent of total revenue is trending higher, implying that the company has got a foot hold in the e-commerce space.
Amazon and eBay combined, have around 35 percent market share in E-commerce. Groupon will have to focus on gaining market share. The company’s main focus will be to shift its existing customers to the e-commerce business and gain market share in that segment. As of now, Groupon is a hold which is in line with Amigobulls Groupon stock analysis.