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LiveDeal Heightens Competition for Groupon

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LiveDeal Inc. recently announced that traffic in its restaurant daily deal website surged 153.0% from Dec 2013 to Jan 2014. On Feb 7, 2014, shares jumped 19.8% ($2.85) and eventually closed at $17.25.

LiveDeal offers specialized online marketing solutions to local businesses. Already available in San Diego and Los Angeles, recently entered San Francisco. Launched in Sep 2013, it helps restaurants to offer daily deals and target prospective customers using the platform’s geo-location feature on a real-time basis.

Moreover, unlike its nearest competitor Groupon (GRPN - Free Report) , does not charge any fees from the restaurants. Although this is not a significant competitive advantage for LiveDeal, the platform’s growing traffic base is a concern for Groupon in the long run.

Nevertheless, Groupon’s policy of launching new products on a regular basis and the growing popularity of its mobile app continues to attract consumers. The company noted that more than 50% transactions (55.0% of North America) in the holiday season were carried out through mobile devices. Billings were up 30.0% from the year-ago period, during the four-day holiday weekend in Dec 2013.

Groupon is set to announce fourth-quarter results on Feb 20, 2014. The company forecasts revenues in the range of $690.0 to $740.0 million. The company expects the bottom line to range from breakeven to earnings of 2 cents per share. The strong holiday season sales will boost Groupon’s fourth-quarter results.

We believe that Groupon is well positioned to gain from the rising e-Commerce spending on mobile devices, a profitable domestic market and an expanding international market.

Although mobile presents ample growth opportunity, increasing competition from established players such as eBay (EBAY - Free Report) and Amazon (AMZN - Free Report) as well as small companies like LiveDeal remains a major concern.

We also note that the barriers to entry into the daily deals market are quite low, which will attract new entrants, going forward. Hence, to remain competitive, Groupon will be forced to continue investments to expand its merchant base, which will hurt profitability, going forward.
Currently, Groupon carries a Zacks Rank #3 (Hold).

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