Around 2008 to 2009, a kind of "frugal chic" trend emerged in the U.S. As the economy imploded following the financial crisis, conspicuous consumption disappeared, and the trend was towards the very opposite. Penny-pinching became not just socially acceptable but desirable, even among those who had avoided the worst effects of the recession. I was one of those that embraced the idea. I am a recovering coupon addict. There are millions like me, and the mass "recovery" from coupon addiction is part of the reason why many believe the recent bounce in Coupons.com (COUP) may be just a pause on the way down.
Couponing is not just a smart thing to do in a financial sense, it can also be fun. On my best trip, I left my local grocery store with around $140 worth of groceries, for which I had paid $12. Obviously, the money is not insignificant, but the real thrill is in the sense of accomplishment in beating the system. The four or five hours spent that morning on research and clipping felt like time well spent. Recently, however, couponing has become a chore.
Grocery couponing has become a victim of its own success. The mass adoption has resulted in more "Print limit reached" and "Program expired" messages than ever, and there are more hoops to jump through now in order to get a coupon. Many manufacturers have realized that if they issue coupons, they want something in return. They many now require you to "like" the company's Facebook page, or give your e-mail address and personal information, in order to get access. Often, once that sacrifice has been made, the actual printing of the online coupon or issuance of the digital one is still controlled by Coupons.com. The company is still getting a piece of the pie, but less so than before.
When Coupons.com reported second-quarter earnings a couple of months ago, there seemed to have been bad news all around. They missed on both revenue and EPS and issued lower guidance for next year. The stock, which had already begun to show signs of weakness, got hammered.
After dropping so far and so fast, a bounce is somewhat inevitable and may lead to a short squeeze in the near term. The basic problem is unsolved: a once-fashionable industry has become frustrating and unnecessary for many.
Deep discount stores and dollar stores face the same problem, which had led to consolidation attempts. Dollar Tree (DLTR) and Dollar General (DG) began a bidding war for Family Dollar (FDO) that culminated in Dollar Tree paying $8.5 billion for the company.
The coupon companies must have watched this closely, and consolidation in that business must be likely. If Coupons.com and rival RetailMeNot (SALE) could bury the hatchet, their combined future would look a lot rosier than they do separately. I have no inside information that such an action is being considered, but that speculation at least is likely.
A short squeeze, a talk of consolidation, or a combination of the two could provide trading opportunities in the near future. A small long position in either COUP or SALE with a tight stop would provide a good starting point to take advantage of that. For longer-term investors, the coupon business looks to be struggling and is best left alone.