Groupon keeps pivoting as it seeks profits

If the writing is on the wall for the daily deals site, it's probably not written in permanent ink

There are critics who said all along that the writing was on the wall for Groupon, but how would they know for sure? With everything the 5 1/2-year-old Chicago company has thrown at the wall to see what would stick, it's hard to tell the difference between the promising strategies and the soon-to-be discards.

Groupon was born of the digital age notion that you pivot when you hit a dead end. But the company, it seems, has never stopped pivoting. It's in perpetual transition in its quest for profitability.

What started as a daily deals site carpet-bombing your email inbox with offers meant to get you to patronize local businesses, switched emphases to become a mobile e-commerce site you visit. In other words, they want to pull you in, rather than push the deals out.

Along the way, Groupon also started expanding its marketplace to hawk deeply discounted goods, including travel deals. The latest idea is to also offer everyday items in bulk, which is about as far away from the local salon discount — the classic Groupon offer — as you can get.

It's a work in progress, which is to say Chief Executive Eric Lefkofsky is working to convince the world that "this fundamental shift from being a predominately push, daily deal business" is, in fact, progressing. At least that's what he was doing during a Tuesday call with analysts in the face of a more than 40 percent decline in Groupon's share price this year, erasing its 2013 bounce.

"Our local business, as we said a few quarters ago, started to experience some head wind, but our plans are on track," Lefkofsky said. "If you look at the business, we're in the midst of this migration from being a predominately email-oriented daily deal business to really building a mobile marketplace. And that migration has positives and negatives."

The positives include first-quarter revenue that's up 26 percent, to $757.6 million, from $601.4 million in the same stretch a year ago. The negatives include a loss of $37.8 million in the first three months of 2014, or 6 cents per share, versus a $4 million loss, a penny a share, from January to March of 2013.

For all its faults, Groupon once came across as if it had a clear sense of what it was and where it was going. Someday still it may fulfill the potential that generated such frenzied attention. The company drew a $6 billion offer from Google in 2010, which it rejected. Subsequently, it went public at $20 per share, giving the startup a value of around $13 billion.

Today, Groupon is worth a little more than a third of that.

Lefkofsky and company, along with exiled founder Andrew Mason, built quite an infrastructure.

What isn't clear is precisely what to do with it.

This is a conundrum one expects of a century-old legacy company such as Sears, which is shedding stores in a bid to slash costs while building up its digital presence. Groupon isn't yet old enough for first grade. But in both cases, the question remains: How do you out-Amazon Amazon?

Driving the latest shift is the fact that Groupon has come to realize what every consumer understood: To feel good about Groupon, you have to cash in on the deals.

Every time a customer sits on a deal that felt so shrewd when it was purchased, and then sees it expire, is a bummer. Every bummer discourages future purchases. It doesn't matter how good the deals are, or how extensive the network of local merchants Groupon had strung together. Making an investment in a deal and then not pulling the trigger is ultimately bad for business.

Once bitten, twice shy.

So, Groupon understands it must find ways to engage more of its customer base. To do it, the company is building up its mobile business, enabling consumers to get the discounts as they might need them, which encourages completion of the transaction.

You build more repeat business this way, and more engaged customers.

"Searchers, people who use our marketplace, spend more," Lefkofsky said. "That used to represent about 6 percent of our business a few quarters ago. It's 9 percent of our business now, and the trends we're seeing are positive."

As for the problem of unused Groupons, Lefkofsky said that seems to be leveling off. "We think we've hit the bottom," he said.

Some analysts now see a bargain in Groupon. Others have never shed the wariness engendered by a fast-and-loose management that was supposed to come off as devil-may-care but struck some as reckless or worse. It's a different company today than it was a couple of years ago, and that was different from the company that launched in 2008.

If the writing is, in fact, on the wall for Groupon, it's probably not written in permanent ink. Nothing connected to the company seems to be.

philrosenthal@tribune.com
Twitter @phil_rosenthal

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