Groupon Inc (GRPN): What Will You Do Differently?

Over the last three years, Zynga Inc (NASDAQ:ZNGA) has seen its daily to monthly active user ratio (DAU/MAU) fall from 26% in 2011 to 21% this year, representing 20 million DAUs and 41 million MAUs. This means that Zynga Inc (NASDAQ:ZNGA) has the task of trying to increase the number of regular gamers, which drove Mr. Mattrick to go get Draw Something from OMGPOP, a popular, interactive smartphone game. In addition, new titles such as a FarmVille sequel and spinoffs like ChefVille and The Ville are in the works, hoping to drive MAUs to be DAUs, as well as regrow the customer base.

Groupon’s 3Q forward projections show losses similar to the second quarter projections, which were $0.01/share, or $7.6 million. This was less than expected, but still not ideal. It may take a quarter or two to mold Groupon in the Lefkofsky image, but if Groupon can make small businesses the crux of the company, this is a service that will be more customized to the mobile clientele, and will drive revenues and profits as more connections are bridged with local businesses.

Mr. Lefkofsky also has to make Groupon look like a good investment. The stock price has jumped 40% in the last year, which would be seen as a sign of improvement. Also a sign of growth can be found in the P/B ratio of 8.9. Clearly, analysts see potential in this to grow further, and a justification that there is a demand for a service like this in the Internet community.

However, there is a price problem. It’s forward P/E ratio stands at 38, which is an expensive place to be despite trading at only $10/share, but may mean that the company may be turning more consistent profits in the future. To do so though, Mr. Lefkofsky has to have a better cash flow than the $266.8 million that was reported in 2012 if he wants to erase the 3.9% profit deficit the company is running.

Conclusion

Investors seem to approve of the change at the top thus far, given the potential for profit and strong P/B ratios, but it may take a while for Groupon to become a buy. At the moment, Yelp Inc (NYSE:YELP) has a stronger allure because of the more frequent usage and connection with local businesses, but has less monetary opportunity than Groupon. If Lefkofsky brings fresh ideas to the table though, it may be a stock to watch again.

The article 3 Questions for Groupon’s New CEO originally appeared on Fool.com and is written by John McKenna.

John McKenna has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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