E-COMMERCE

With acquisition, Austin's RetailMeNot jumps into secondary gift card market

Posted April 7th, 2016

In a deal that launches it into secondary gift card market, Austin-based e-commerce company RetailMeNot said Thursday that it has acquired an Arizona startup that buys and sells gift cards online.

GiftCard Zen, based in Phoenix, operates a website that buys gift cards from users who don't want them -- for less than the face value of the card -- and then resells them at a discount to users who do want the cards. The average discount on a gift card for sale on the site is between 12 percent and 15 percent off face value.

RetailMeNot said it paid $22 million in cash for GiftCard Zen, plus up to $11 million in deferred compensation based on achievement of certain performance targets and employment agreements.

Founded in 2009 as Whaleshark Media, the company has become the world's leading online marketplace for coupon and consumer deals, mostly by buying smaller websites. In 2010, it bought RetailMeNot, an Australian company that built one of the largest coupon sites in the world. The company changed its name to RetailMeNot two years ago. 

Today, RetailMeNot's sites provide more than 600,000 coupon codes, free trials and other retail offers from more than 70,000 merchants including Macy's, Nordstrom, Wal-Mart and Target. 

Cotter Cunningham, CEO of RetailMeNot, said the fast-growing secondary gift card market fits the company's strategy of offering online coupons, rebates and other digital deals. 

"It feels a lot like online coupons did eight years ago," Cunningham said. "It's a little confusing to people, and there's an opportunity for us to do what we did with RetailMeNot. We can get in and explain it and become a trusted source."

Like online coupons, the secondary gift card market is highly fragmented, with many small players  jumping into the business in recent years. GiftCard Zen was founded three years ago and has about 25 employees.

Gift card spending has grown from $40 billion in 2003 to more than $100 billion in 2015, according to the Mercator Advisory Group. 

Cunningham said RetailMeNot has been testing the gift card resale market on its sites and will consider additional acquisitions to grow its presence in the gift card market.

Meanwhile, RetailMeNot revised its first quarter earnings guidance upwards. The company said it now expects its revenue to be in the range of $54 million to $54.5 million compared to a previous range of $49 million to $54 million.

The company also expects operating earnings for the quarter to be at or above the high end of guidance and in the range of $12 million to $12.5 million.

For fiscal 2016, RetailMeNot said it expects revenue of $228 million to $241 million versus previous guidance of $225 million to $240 million, and adjusted operating earnings of $52 million to $63 million compared with previous guidance of $51 million to $62 million.

The company has about 550 employees, with the majority based in Austin.





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