Groupon Just Bought A Startup That Once Revolutionized An Industry

Groupon Inc GRPN shares rose 3.4 percent on Thursday after the company revealed it will acquire OrderUp, a startup focused on food delivery operations in and near college towns. "Online food ordering and delivery represents an untapped opportunity for Groupon and serves as a natural extension of our local marketplace," Groupon CEO Eric Lefkofsky said in a press release.

The Company Created A New Business Model

OrderUp was founded six years ago in Baltimore, Maryland and is now in more than 30 locations in the U.S. The company essentially created an entirely new business model: Digital franchising.

Allow Inc.'s Minda Zetlin to explain:

"What's a digital franchise? No one had ever heard of one before OrderUp...Back in 2003, when [co-founder] Chris Jeffery was in college, he noticed that few restaurants had their menus posted online. And for those that offered takeout or delivery, it wasn't possible to order online. He suspected there was an opportunity there for starting a successful business...Jeffery's concept was simple: become the Expedia of restaurant ordering."

How it works:

"Hungry customers can use OrderUp to find their favorite restaurants, or search for, say, the nearest Thai place. They place their orders directly online and either pick them up at the restaurant or have them delivered. OrderUp collects the money, conveys the order to the restaurant, deals with any snags, and keeps a cut of the total bill."

In addition to its technology, OrderUp brings a network of restaurants and customers to the table, something Jeffery highlighted on Thursday. "We look forward to bringing the thousands of great restaurants that we feature to hungry Groupon customers across the country," he explained.

Going Deeper

The startup has focused on college-age users, but the acquisition doesn't reveal a strategy shift for Groupon. Speaking to Benzinga, a company spokesman said, "We're interested in takeout and delivery broadly. I wouldn't say college towns are a particular area of focus for us, but it's nice to add quality inventory in a number of new markets."

Groupon closed the day at $5.18, still off its 52-week high of $8.43. Earlier this week, Macquarie analyst Tom White upgraded his rating on the stock to Outperform with a price target of $7. White said an improving cash position and valuation are primary reasons for the outlook.

He called Groupon a "growth company trading at a no-growth multiple."