Groupon's got its own deal today: Up to 30 percent off for a corporate makeover.
Shares of the daily deals website plunged about that much on Wednesday, their biggest one-day decline, after Groupon said it doesn't know whether it will lose money or make a smidgen of profit in the fourth quarter. It predicts either earning or losing 1 cent per share, compared with the 7 cents analysts estimated it would make. And sales may be at least 11 percent below the consensus estimate.
Remember that time Google wanted to buy Groupon for $6 billion? Well, after dropping 65 percent for the year, the company is now worth less than a third of that. Several analysts lowered their price targets Wednesday, and Wells Fargo, one of the last remaining bulls, cut its rating to a hold.
So what's Groupon's big comeback plan? More marketing, it says. Investors are understandably disillusioned. This a Band-Aid, not a solution.
It's unfortunate for consumers, too. The fact that not as many people want to buy Groupons is a sign that something is wrong with the product. And putting more ads in their face is just cheating them of a better experience.
For anyone who's lost interest in the site, the problems are clear (though admittedly not easily resolved). There are too many offers on Groupon that are either useless or lack mass appeal. Some available in New York City today:
- Up to 52 percent off eyelash extensions
- Up to 53 percent off chocolate Brazilian waxing -- what?
- A $69 BYOB painting class for two
- $275 for $500 worth of wigs
And the e-mails Groupon sends are overwhelming. There are just too many offers, especially when users may be receiving e-mails from multiple daily deals sites. Search Groupon for massages in NYC and you get 907 results.
What Groupon really needs is to focus and differentiate the product. Why not one good deal per day? And they really need to put the emphasis on "good" -- really zero in on the offers that would attract traffic instead of some ridiculous service most people wouldn't want to use. Its food and drink offers aren't bad, but again, there are too many. It's also made a push into e-commerce, but that's a very difficult business with even more competition.
Groupon needs to find a way to dominate the local deals space, and advertising won't do the trick. It shouldn't throw tons of money in that direction until it innovates on the product side. As Gene Munster, an analyst for Piper Jaffray, puts it: viral, simple products are the key.
And if Groupon can't make a better, more relevant product, then why not look for takeover bids? Amazon just pulled out of the daily deals sphere, which isn't exactly a vote of confidence for the business model. But there may be some tech companies out there that could bring Groupon under their umbrella and do more with it.
After all, the stock is cheap. Groupon's enterprise value is only $1 billion after accounting for its large cash balance. The deal practically pays for itself. It's also valued at a 70 percent discount to next year's average revenue forecast.
With co-founder Eric Lefkofsky back in the chairman role and Rich Williams, former chief operating officer, now running the business, perhaps Lefkofsky could quietly put some feelers out. Although at this point it may be that a Groupon deal, much like many of its daily offerings, won't attract any takers.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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