Groupon (GRPN) has seen its stock slide downhill in the past year by 15%, has struggled to pin down its business model and posted uneven first quarter revenue. So, who wants to buy a company like that?
But D.A. Davidson analyst Tom Forte sees Priceline.com parent Booking Holdings Inc. BKNG is the most likely buyer, followed by Alibaba, Alphabet or Facebook. D.A. Davidson believes Priceline could buy both Groupon and Yelp Inc. (YELP) to support its local-commerce effort -- Groupon for e-commerce and Yelp for advertising.
Many Changes, Little Impact
Groupon, which went public in 2011, made series of changes in the past couple of years without the market taking much notice.
For instance, the company now offers a better consumer experience. "They made Groupon easier to use with Groupon Plus initiate," Forte said. "They are starting to get traction on selling products at full price, which makes Groupon more valuable for merchants."
However, GRPN also decided to scale down its international operations. The company is now active in 15 countries, compared to 50 a few years ago.
"If I was on management team, then I might be pretty frustrated," Forte said in an interview with Real Money. "I would think this was the best way to maximize shareholder value."
While the company posted declines in its local and goods revenues in the first quarter, D.A. Davidson views that as a temporary setback and believes Groupon's overall vision remains on the right track.
In the first quarter, Groupon's total revenues dropped 17% compared to a year before to hit $393,256. Its Groupon Merchant business, listed as Goods in its financials, retreated 26% in the first quarter year on year.
Finally Getting the Model Right?
CEO Rich Williams told investors on Groupon's latest earnings call in May that the company's coupon model was better suited to local e-commerce -- and more successful than efforts by Facebook and other would-be entrants who tried to match Groupon in local commerce.
"Lots of people have tried to play as we play in the local space, [but] we've seen almost all of them fail," Williams said. "A big advantage that we've had is we've built a lot of competency and we've built some tools. We have a lot of software and a lot of data from selling almost a billion-and-a-half Groupons on how to connect with small businesses in a way that works for them -- in a way that can help them grow, in a way that drives transactions for them."
In autumn 2010, the still private and fledgling Groupon turned down a $6 billion offer from Google, now known as Alphabet. Instead of accepting the deal, GRPN raised $700 million in a November 2011 initial public offering.
It was the second largest IPO in history, trailing only Google's $1.7 billion in proceeds in 2004. Groupon even reached a valuation of $16 billion on its IPO day.
Now, Alphabet might consider making another bid for Groupon in its ambition to go more local. Forte said GRPN's local-merchant data and relationships could help Alphabet generate lots of ad sales. After all, Groupon had 46.9 million active customers as of 2018's first quarter, and consumers have downloaded its mobile app more than 177 million times.
In its quest for search-engine dominance, Alphabet might decide to just go it alone. Forte cited a long-running feud between Alphabet/Google and Yelp after Google failed in 2009 to reach a deal to take Yelp over.
IAC/Interactive Corp. is also being muted as a potential buyer. Joey Levin, the CEO of IAC, has been on the board of Groupon for several years.
(Martin Cassidy contributed to this column.)