Groupon shares tank after earnings report
The daily-deals site beats expectations on profit but falls short on revenue.
By Chris Poley
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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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.
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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