In the 21st century, business models can be grouped into one of three broad groups. The first is those business that can fall under the “traditional” banner. Car manufacturers like General Motors manufacture cars in much the same way as the founders of the industry like Ford Motor Cars did in the early 1900’s. Stores that sell basic food items like Walmart are also largely unchanged from their historical roots.
On the other end of the spectrum, there are whole industries that were completely unimaginable a few decades ago, and these fall under the “revolutionary” classification. Services like Facebook, Twitter and Instagram have changed how we interact and share, and are each multi-billion dollar businesses.
The third category of businesses fall somewhere in between and can be called “hybrid” business models. Some of these involve taking traditional businesses or habits and applying a different spin to them through technology.
Nowhere is this clearer than the success story of Coupons.com. Cutting coupons from the local newspaper of catalog has long been a tradition for households across America before their weekly shopping trip.
Coupons.com (COUP) has taken that habit and transformed it for the digital age, which is always of interest to options trading services, because it means the company can bring a new advantage to a proven business. This interest has increased along with the share price which has bounced from lows around $12 to recent highs closer to $20.
Understanding the Business
Coupon cutting is one of the simplest and easiest to understand business models in the world. Businesses pay newspapers and magazines for advertising space in their publications. In this space, they place an advertisement usually accompanied by a barcode. This barcode, when brought into the store, allows the customer to access the special that the company offers.
This might be a discount for volume (a 2 for the price of 1 special) an entitlement to a free gift, or a percentage discount. Both parties benefit, with the publication attracting more readers and buyers if it is known they offer good special deals, while the retailers “wins” from attracting more foot traffic to their stores through the special deals, which may in turn lead to better sales of other products.
However, smart phones and tablets have allowed the old method of cutting out paper coupons with scissors to be bypassed for a more sophisticated solution. The rapid spread of smart phones and tablets has meant that rather than clutching 14 different sized coupons of different sizes, consumers can save them all in a simple electronic wallet on their phone.
This is the service that Coupons dot com (COUP) provides. Local businesses, which have always been the mainstay of the coupons industry, are able to provide their specials directly to digital sources. In addition, pure online retailers can also distribute coupons without the need to invest in expensive glossy catalog advertising.
Coupons.com also provides customers with a service called Grocery iQ, which allows them to build their shopping list, then searches the internet for offers that could apply to their desired purchases.
There have also been some steps towards consulting and data analysis, with services for companies to monetize the traffic that comes to their website, through services like custom branded micro sites. Sites like this can be used for specific purpose promotions like 4th of July or Halloween discounts, separate from the larger parent website.
Metrics and Measures
The most recently released financial figures for Coupons.com (COUP) showed the benefits of taking a tried and true business model and improving it for the digital age. The revenue increase was very strong, with a 47% increase in headline income for the quarter to $58.5 million.
The total number of coupon transactions also increased strongly, with 440 million a 41% improvement on the previous year. Total coupon transactions show how many users are engaged with the service and using it regularly.
Income before income tax increased to $8.1 million, which was almost six times the $1.2 million figure reported in the same quarter in 2013. Unfortunately, the company still reported a net loss for the quarter, but the trend that caught the attention of the options trading services that follow the stock was that the next quarterly report for Coupons.com is likely to be another improvement or a profit.
The Investment Case
As more of our lives migrate online, some companies are better poised to benefit than others. Coupons.com firmly believes that they are a firm that is ready to serve this digital migration. They cite figures that show that customer facing organizations distribute in excess of 300 billion coupons every year. Currently, less than 1% of these are digital or online.
If the company is able to even capture a small section of this growing market, the rewards will be stellar, and options advisory newsletters will have found a new favorite stock to trade.
Global growth is a real possibility if Coupons.com can take the lessons they have learned from the North American market and apply them to a wider geographic audience.
Competing against the company is the fact that retailers are becoming more sophisticated, and many are creating their own apps and sophisticated mobile websites. Because these retailers want to monetize their own traffic and limit how much they spend paying third parties like Coupons.com, they may present a threat to the future growth of Coupons.com (COUP).
In addition, there are relatively few barriers to entry to providing the sort of “e-wallets” that Coupons.com provides, so a competing service with better features or a strong level of high level retailer support could erode the market position of Coupons.com
Coupons.com (COUP) has the potential to leverage the lessons they have learned in the United States and take their success to a much larger and growing global market. However, before they truly grab the attention of options advisory newsletters, they should be able to demonstrate a clear strategy for capturing this market, and a return to profitability. With the help of a professional options advisory service, you can stay up to date with developments of this kind, and trade profitably on any positive news.