Groupon Grapples with 20% Decline
Investors are searching for a better daily deal after Groupon (NASDAQ: GRPN) reported its third-quarter earnings results. The company plunged to a new all-time low during after hours trading, and shares have continued to plummet this morning as investors get out of Groupon.
"Revenue of $567MM came in well below Citi/Street @ $596MM/$591MM," Citigroup wrote in a report. The bank chopped more than 50 percent off its price target, which dropped from $9.00 to $4.00.
"While GRPN is building out a large Local Mobile e-commerce Platform, the ROI and timing of the platform investments are unknown," Citi added. "And this [management] team doesn't yet have an execution track record. In the meantime, the core Daily Deal business has almost slowed to a halt, and rapid mix-shift to Direct revenue drastically changes the profitability profile of the model. Until we see sustainable growth in core Daily Deal business coupled with an outlook for expanding core margins, we continue to pass on this deal."
Most analysts agree. Hudson Square Research is one of many firms unhappy with Groupon's performance. "We downgrade Groupon from Buy to Hold not because 3Q revenues fell short of expectations (earnings actually beat our forecast), but because we believe the aggressive push into direct sales creates 1) operational risks 2) lower margins, and 3) the potential for merchant partner conflict," Hudson Square wrote in a report.
Goldman Sachs lowered its estimates but maintained its Buy rating and $10 PT. Jefferies, which currently has a Hold rating on Groupon, lowered its PT from $4.75 to $4.00. J.P Morgan withdrew its $8 PT but maintained its Neutral view of the stock. Sterne Agee also reiterated its Neutral rating.
"GRPN missed 3Q revenue and guided to lower 4Q CSOI," Morgan Stanley wrote in a report. "While we are proponents of the company's long-term position within the local e-commerce landscape, the path to executing on this vision will take longer than expected. We are downgrading due to slower growth and lower margins."
Morgan Stanley reduced its 2013 revenue estimates from $2.79 billion to $2.56 billion.
"Total gross billings improved by just 5% y/y to $1.22 billion and were down nearly $70 million from 2Q," Benchmark wrote in a report. "North American gross billings were unimpressive, but did recover from the modest sequential decline in 2Q back to 1Q levels at $552 million, and were up 38% y/y."
Benchmark said that this marks the "second consecutive quarter of meaningful deceleration from $801 million in 1Q to $738 million in 2Q and down to $666 million in 3Q."
Groupon has tumbled more than 23 percent today. One year ago, the stock jumped 40 percent after its IPO. At the time, Groupon was expected to be the next big tech company, offering better daily deals than any of its competitors. But while the firm is enormous (and could continue to grow), Groupon has not figured out how to consistently profit from its customers.
That could change with the rise of Groupon Goods. Unlike the site's traditional deals (which provide savings on food, travel, fitness and entertainment), Groupon Goods allows consumers to buy specific items at a reduced rate.
Despite the company's many troubles, Groupon is unlikely to go anywhere. But until it can find a way to improve its bottom line, investors are likely to look elsewhere for their daily deal fix.
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