Groupon (GRPN) Plunges to Fresh Lows After Missing Top and Bottom Line Estimates

Shares of group discount website Groupon (GRPN: Charts, News) slid over 23% last Friday, after the company reported dismal third quarter results that continued its losing streak since going public last November. Groupon's stock is now down nearly 90% over the past twelve months, and is still in technical freefall.

The company, which once turned down a $6 billion takeover offer from Google (GOOG: Charts, News), now has a humbling market cap of $1.84 billion. Groupon reported break-even earnings per share on revenue of $568.8 million. Analysts had expected Groupon to earn 3 cents per share on revenue of $590.12 million. Daily Chart
Although both its top and bottom lines rose over the prior year, when the company generated $430 million in sales and lost 18 cents per share, shares still slid sharply to new lows. The company's active customer base rose 45% during the third quarter, but its amount of purchased deals only increased by 9%. This disconnect between user numbers and purchases suggests that many users are simply browsing the site and refusing to commit to any deals. Groupon is still generating cash flow, although it has decreased 35% year-over-year to $42.1 million. At the end of the third quarter, Groupon had $1.2 billion in cash and cash equivalents. Morgan Stanley analyst Scott Devitt reduced his rating on Groupon from overweight to equal weight, stating that "deal fatigue is evident," referring to the company's business model of attracting groups of customers to receive steep group discounts from participating retailers. Analysts believe that Groupon's business has low entry barriers, and has already been replicated across the web by smaller sites, which have steadily chipped away at the company's once dominant market share. Devitt recanted his previous, more bullish forecast, stating, "Our thesis that increasing deal merchant density and utilizing deal targeting would prevent deal fatigue proved untrue." Stifel Nicolaus analyst Jordan Rohan also believes that Groupon's flagship daily deals business is running out of steam. Yet Rohan believes that its Groupon Goods shopping site, which generated nearly $500 million in revenues over the past year, could offset poor growth from its primary deals segment. Rohan noted that Groupon Goods has a long way to go to catch up to industry leaders Amazon (AMZN: Charts, News) or eBay (EBAY: Charts, News), since it would be forced to abandon its higher margin daily deals business for a lower margin e-commerce one. The transition would also be costly, and force Groupon to dip into its $1.2 billion in cash. "Right now, investors are not likely to give Groupon the benefit of the doubt," Rohan commented. "Accounting issues aside, investor trust in the core Groupon business model and management team is insufficient to take that leap of faith." Rohan is referring to the series of accounting scandals in the early part of the year, when it was discovered that Groupon had invented new financial terms and sales categories to artificially inflate its reported revenue. This resulted in several key executives and board members - including Starbucks (SBUX: Charts, News) CEO Howard Schultz - leaving the company. Over the past year, Groupon has fared worse than its social media peers LinkedIn (LNKD: Charts, News), Facebook (FB: Charts, News) or Zynga (ZNGA: Charts, News). The stock does not pay a quarterly dividend. Other News About GRPN Groupon: Dead as You Know It Is this the end of Groupon? Groupon's Slump Stands Out as Most Techs Rise Groupon splits from the pack and plunges as other tech stocks recover. Other Stocks in the News The Walt Disney Company Earnings: Profits Climb By Double Figures Again Disney reports strong earnings, but shares slide steeply on lower revenue. AppleIncisOversold, AnalystSays Is it safe to buy Apple yet? Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Nov 12, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

Posted in ...