Groupon Inc (GRPN), Amazon.com, Inc. (AMZN): This Is Not the Company You Should Invest In!

In the last year, there has not been a single instance when I have skipped checking Groupon Inc (NASDAQ:GRPN)’s website before taking out someone for dinner or buying myself a new wrist watch. However, it’s not just the reasonable prices that have kept me hooked on the site, but also a plethora of great products and services it has to offer. A very young company on Wall Street, Groupon Inc (NASDAQ:GRPN) got itself listed at a valuation of approximately $13 billion in 2011. Over the past couple of years, however, it has shed over fifty percent of the initial valuation due to concerns about its growth prospects.

Revenue is declining faster than expected

Groupon Inc (NASDAQ:GRPN)’s quarterly revenue growth has been on a rapid decline, with the most recent quarter reporting a 7.5% growth in revenue on a year-over-year basis. One of the reasons for declining revenue can be fierce competition, but in Groupon Inc (NASDAQ:GRPN)’s case there is no visible competition from a global player.

Please mark the use of the word “global” because it faces good competition from local players in major countries. Let us take India, for example, where it acquired SoSasta.com in 2011 and re-branded it as Groupon Inc (NASDAQ:GRPN) India. While India does not enjoy the presence of huge global companies apart from Groupon Inc (NASDAQ:GRPN), there are local websites like Snapdeal and Timesdeal that directly compete with the company.

International business is not picking up

Groupon’s international business has witnessed a bumpy ride in the last two years, as the management has desperately tried to bring it up to a level like in North America. In the fourth quarter of 2012, revenue from international operations declined by 15%, partially offsetting the gains achieved in the North American region.

It was disappointing to see such a considerable decline because the fourth quarter is the busiest quarter for sellers across major markets owing to the holiday season. Groupon’s top brass defended the poor performance by highlighting the lack of an adequate business structure in terms of network and third-party logistics as is present in the U.S.

Not the best business model

The company’s share price dropped to an all-time low of $2.60 in November, 2012 as investors were not happy with the falling sales and poor returns. As many business gurus have pointed out, a big reason behind Groupon’s steep downfall is its unsustainable business model. Groupon’s business model strives on two indispensable pillars: customers and merchants. In such a case, the only way to achieve success is in creating phenomenal value for these stakeholders. As a customer myself, I believe Groupon is the first choice for people worldwide for buying robust products at reasonable prices. However, the merchant leg of its business is the major cause of worry.