Groupon shares tank after earnings report

The daily-deals site beats expectations on profit but falls short on revenue.

By Benzinga Aug 13, 2012 3:10PM
Updated at 5:10 p.m. ET Tuesday

By Chris Poley

Groupon's (GRPN) stock sunk 27% to close at $5.51 Tuesday as investors panicked over its quarterly numbers, released after Monday's close. The company beat expectations on profit but missed on revenue.

The stock has been lambasted by traders since its IPO, losing more than 60% of its value. Shares had been turning around ahead of the company's second-quarter results, signaling a short squeeze or possible signs of stabilization.

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As it turned out, the company wasn't stable enough. The daily-deals site reported revenue of $568.3 million, missing analyst expectations for $573.1 million. Profit was 8 cents a share, excluding costs, beating expectations for 3 cents a share. Including stock-based compensation and other costs, profit was 4 cents a share, beating expectations for a loss of 2 cents a share.

It wasn't that bad of a quarter, but Groupon investors were already skittish enough. Anything that wasn't a huge beat was going to send them fleeing for the exits.

In May, the e-commerce marketer pegged its second-quarter income from operations at between $25 million and $45 million, up from a loss of $101 million a year earlier.

The stock has been under pressure since its dubious debut last November. Besides its inflated valuation, the company's flawed business model has come into question. Regulators have previously questioned Groupon's accounting practices.

Groupon has been under fire since it increased the size of its IPO to raise $700 million, debuting with a market value of $13 billion. At that time, the company was the second-largest Internet IPO since Google (GOOG) raised $1.7 billion in 2004. When the smoke cleared, investors, insiders and analysts questioned Groupon's ability to sustain growth.

In the long run, competition from Internet giants Google and Amazon (AMZN) may slowly but surely erode Groupon's customer base. Faced with companies that have deep pockets and a vast reach, Groupon may find it increasingly difficult to keep investors content.

To the company's credit, the Groupon goods-selling business is contributing an estimated $50 million in revenue per quarter. "I can see it becoming a really good, big business for them," Sameet Sinha, analyst at B. Riley & Company, told Reuters. Sinha still sees controversy ahead with Groupon's accounting issues.

Throughout July, Zack's Consensus Estimate held steady, and of the 13 analysts covering Groupon, only one had a downward revision.

Groupon has been beaten down over the past three months, losing 35% of its value. The stock closed at $7.55 Monday afternoon.

More from Benzinga

Aug 14, 2012 3:02AM
So let me get this straight....they missed their expected revenues (573m vs. 568m) by a relatively small amount, but profits were up 8 cents vs. projected 3 cents.  And this sent investors running??  I don't understand this sport.  At all.
Aug 13, 2012 9:48PM
If they offered deals for things other than bikini waxes, perhaps they would do is the same crap from week to week.....
Aug 13, 2012 7:18PM

In an industry with no barrier to entry, you need big friends.  No way google/microsoft/apple is not going to dominate the coupon space.

Aug 14, 2012 1:16PM
Anyone who read their filing with the SEC should have seen this coming.  I don't know how they were even allowed to go public.  Groupon stated in their filing that their business model might not be sustainable without the continued abnormal expenditures in marketing.  They also showed how they essentially are robbing Peter to pay Paul.  Their payment terms to their clients (the businesses who advertise the Groupons) are the only thing that keeps them going.  The client doesn't get their share of the revenue up front but has to wait up to 60 days to get paid.  So as long as they continue this cycle, it will continue to go in a downward spiral.  It really is the same thing as a Ponzi or pyramid scheme in that one day when Groupon folds, there will be 2 months worth of clients that will still not have received the revenues from the Groupons they sold!  Anyone who bought shares of this company is a complete ignorant moron.
Aug 13, 2012 4:58PM
Sears stuff is junk. Brand it anything you want. Quality ran out the front door a long time ago.
Aug 14, 2012 4:41PM
hope they go under.   Tired of being asked to sell my product for half off.  NO WAY.
Aug 14, 2012 3:57PM
It appears to me that the company is running out of clients to put up on the internet. Yes they beat on the numbers but it is the future that they are worrying  about. I would not buy this company for any costs as I do not belive they will not be here for very long.
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