The stock has recovered since then and is now trading at $8.71. Bears have a lot of reasons on why Groupon Inc (NASDAQ:GRPN) is a bad investment but one argument from bulls is good enough to counter them all – Local is the way to go for Internet companies and targeting local customers will be a secular growth story for the next few years in the space.
As investors continue to realize the potential which the local market offers, Groupon’s stock price is expected to see more upside. However, Groupon Inc (NASDAQ:GRPN) isn’t alone when it comes to listed internet companies which are a play on local market potential.
Yelp Inc (NYSE:YELP), another player in the local space, is up 121% Year to Date and offers significant potential. Even bigger diversified players like Google Inc (NASDAQ:GOOG) have made going local an integral part of their strategy. In this article, I am taking a look at these companies in detail.
Groupon: Key metrics turning positive, Wall-Street expectation still low
Groupon Inc (NASDAQ:GRPN)’s stock has gained 82.2% Year to Date. The company’s key fundamental metrics troughed in the fourth quarter of 2012 (4Q12) and are improving since then. In 1Q13, the company reported North American (NA) billing growth of 23% year-over-year (YoY). Mobile transactions grew to 45% of the total from 40% in 4Q12, while the number of active customers were up 13% YoY.
Recently Groupon Inc (NASDAQ:GRPN) expanded its offerings to include travel, live events and product sales (Groupon Goods). I believe Groupon is well positioned to take market share in these areas. The company is using its loyal subscriber base to cross-sell these services. Groupon Goods in particular is showing good results, making Groupon more of an e-commerce company.
Groupon Inc (NASDAQ:GRPN) is currently trading at a market cap of $5.86 billion. This is lower than $6 billion Google offered it for a buyout before it went public. Most of the sell side analysts have a sell or hold rating on the company. I believe sentiment on the Wall Street will continue to turn as Groupon keeps positively surprising the analyst community.
Yelp: Secular growth to continue
Yelp Inc (NYSE:YELP) has posted more than 50% YoY topline growth for the past several quarters and I believe it can continue this performance for the next few years. The company’s penetration in the US small and medium business (SMB) market is still very low and it has only recently began to monetize its international presence. Good execution, low penetration and ample market potential means the company is likely to deliver strong growth for the next several years.
In addition, increasing mobile usage is another major tailwind for Yelp Inc (NYSE:YELP). On the, one hand, it reduces Yelp’s dependence on Google search as mobile users directly visit Yelp’s app on mobile. On the other hand, more and more consumers are now using Yelp Inc (NYSE:YELP)’s mobile app which is adding to its revenue growth. Yelp Inc (NYSE:YELP)’s monetization of mobile users is almost comparable to that of desktop users, hence there is no worry of cannibalization of high paying desktop users by low paying mobile users.
Yelp is trading at eight times (8x) its sales.The company’s business model has a good amount of built in operating leverage and viral marketing is likely to help its top-line grow at an impressive rate. The company is likely to even make money, turning in positive Earnings Per Share by next year. Yelp is increasingly a day to day utility for consumers who use it to make their purchase decisions. I believe there are ample growth opportunities for Yelp Inc (NYSE:YELP) and it will be a secular growth story for next several years. Hence, I recommend a buy on the stock.
Google: Acquisition of Waze highlights the importance of local
Google Inc (NASDAQ:GOOG) has three categories which attract over a billion monthly users each. They are its core search offerings, YouTube and Google Maps. It’s core search offerings is already monetized to a good extent while over the past couple of years it has increased advertising on Youtube. Effective monetization of Google Inc (NASDAQ:GOOG) maps, the only remaining “billion monthly user” category, represent a significant revenue growth driver for Google in the long term.
Google Inc (NASDAQ:GOOG)’s acquisition of Waze will add a social element to its offering and make it more relevant for local business partners. It will also provide Google defense against new players entering this space. The price Google paid for this acquisition ($1.3 billion) highlights the importance Google is placing on the local business as the next growth driver.Google Inc (NASDAQ:GOOG) is a very diversified company and local/maps business alone cannot be the reason for buying its stock. However, the company is doing very well on the other fronts as well and improving revenues from local/maps business will prove to be icing on the cake. I recommend buying the stock.
To sum up, local advertising represents one of the most attractive opportunity for internet investors. Groupon Inc (NASDAQ:GRPN) and Yelp are two pure play stocks on local which investors must include in their portfolio. For investors looking for more diversified play, I believe Google Inc (NASDAQ:GOOG) is a good bet.
The article Want to Make Money on Internet, Go Local originally appeared on Fool.com and is written by Ash Sharma.
Ash Sharma has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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