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Morningstar Senior Equity Analyst Rick Summer and Benchmark Capital Analyst Frederick Moran debate whether Groupon is a buy for investors.
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You've got a Groupon deal in your inbox but should you have your portfolio to -- what the most talked about IPOs this year but now.
Capped out of the closing Bell's first ever ratings rumble in the cell corner from Chicago.
He has that at this at a CFA a CPA.
And an MBA Morningstar senior equity analyst -- summer and in the by corner from port beach Florida -- time Wall Street Journal all star analyst team member.
Fred Moran an analyst at benchmark capital.
It's a Fox Business exclusive and guys for doing this you're first and we figured that we thought was.
More useful to viewers in getting somebody who loves the stock and somebody who hates -- stock -- we really explain.
Their positions and that people can take their own position whether they want to in the stock so.
Let us Begin with spreads you have the -- on the stock right now.
Name three reasons that you say it deserves to be in people's portfolios right now for Groupon.
Well first thought this is an exciting new sector of the Internet.
The and voucher system of daily deals through the Internet is a whole new growth segment.
Second off Groupon pioneered this segment.
They have dominant market share with 54%.
Of the market.
The biggest sales force -- over 5000 sales people and the global position.
And third off although barriers to entry are low.
Scale is a huge advantage there's a first mover advantage here.
And clearly Groupon is way out ahead of the pack and will capitalize on this opportunity.
Rick no glossing over your rating and that's a flat -- sell even though Fred just announced a whole bunch of issues that actually look good on the surface you're digging deeper and you say.
Not so much why.
Yeah there's a lot of a lot of concerns here you gotta give a lot of credit they've really pioneered certainly can some consumer behavior that condition knowledge to look at our and boxes for 50% off deals.
We look at that a few things one is they certainly have scale and that's not translating and economics and that's a big concern for us.
We're really don't look at this local advertising businesses really being something that's wildly profitable but we don't see how Groupon really gets a lot of scale and operating leverage in that business.
I think secondly we talk a lot about barriers to entry.
But it's not clear that just daily deals is an industry -- itself I mean we look at what they need to do need to actually instill some merchant loyalty.
And lastly you know clearly the consumer isn't necessarily look -- -- -- as well so it's it's is very challenging to make sure that the consumers loyal to Groupon.
And loyal to the merchant when they have all these other alternatives that are staring him in the face from Google offers -- living.
Social -- so it's gotten to be crowded space Fred and that's.
What -- is saying here but what about deal fatigue.
I don't wouldn't -- first started I signed up for that I finally said I it -- need another hot stone massage at two thirds percent off any.
What do you say -- that and also fatigue on behalf of some of the merchants who don't see that are alike that return on investment.
I think deal fatigue on behalf of the consumers.
She is a real concern.
Although once you start using it.
You come back over and over again so it's sticky for certain consumers.
Not so much -- for other consumers.
Those key users that come over and over again will be the driving force behind revenue creation going forward.
In terms of the merchants kind of the same thing once a merchant sees that his.
His studio or -- -- honors restaurant gets flooded with new customers.
They -- that they can and drive economies off of that.
If they find that it brings in a bunch of users that never come back and it cost them a lot to us subsidize that promotion.
Then they may not use it so often.
But for a certain segment of local merchants.
This is no cost upfront way to advertise.
And get a massive amount of new customers into your doors.
OK but Rick let me give you a a metric for Q3 they came in with gross Billings up 480%.
Chunk of change about one point two billion dollars looks like a business to be -- Well is -- all that you can you can sell eight and a dollar for eighty cents pretty easily grow the business and that it to us we can't really look at that.
We look at growth is is interest thing.
But it in terms of predictability repeated building that's a much bigger challenge when you look at merchants.
Merchants are actually sure what there -- alliance you know we look at the judicial whether there's marketers with big -- calculators.
We're talking about the quarter dry cleaner for talking about the -- and on the corner that may not understand they're cannibalizing their sales and until they run it through this for twelve months.
They're really not gonna have a great understanding of them actually perhaps lost money -- opportunity costs which is very very challenging to measure.
They need one of every eight customers that were -- -- Groupon needs to be -- new.
Life time.
Customers see that's -- what we're seeing is we're seeing people looking at Groupon and their re acting when -- -- know the merchant when there are going to use the merchant what does that increases that's problematic.
This stock IPO to twenty dollars a share it's just slightly above it right now but annual high -- since it's been and existing IPO stock.
31 dollars it is well off that price of by the way gentlemen eighteen out of the thirty social media companies that have gone public since 2010.
Are trading below their IPO price so it does not bode well certainly Fred but in the end.
You know last word on this I guess you say it's still by 54% market share that that's strong certainly.
L first -- I think the generalization about the economics a local merchants is dead wrong.
Every local merchant runs a different type of business with different economic -- Some of these deals Groupon can pack the studio with people that otherwise may have only had a few people for one and -- there.
That's wildly profitable for that our studio.
So I think this helps a lot of local merchants the other beauty of it is.
There's no advertising cost which doesn't necessarily translate the dollars Groupon gets this out to a massive number of people.
And deliver -- and at no cost upfront to that local merchant.
Fred start I wanna quickly and with Rick -- literally -- two seconds Rick what do you foresee upgrading the stock at all from yourself soon yes or no.
Well we need we need to see a lot of traction and loyalty programs and actually.
Getting locked in for merchants from our own perspective OK good to see you thanks for joining us -- -- summer Fred Moran in our very first ratings -- we'll have much more.
