by Jim Woods | May 7, 2014 2:44 pm
You can walk on the right side of the road, or you can walk on the left side of the road. But when you walk in the middle of the road, you get squashed.
That’s precisely what’s happened to Groupon (GRPN) stock today, as the shares were squashed with a midday Wednesday selloff of more than 19%. The catalyst for the drop off the cliff in Groupon stock was the release of the company’s Q1 earnings results, which showed a wider-than-expected Q1 of $37.8 million, or 6 cents per GRPN share.
That metric is ghastly when compared to the loss of just $4 million, or one penny per share, in same quarter last year.
On a positive note, revenue did increase an impressive 26% year-over-year to $757.6 million, which bested Street estimates for revenue of $738.4 million.
But for Groupon and GRPN stock holders, the real rub here is that the dismal Q1 bottom line loss is due to the increased costs associated with the company’s planned transition from a so-called “deal-of-the-day” website to a more traditional e-commerce site such as Amazon (AMZN) or eBay (EBAY).
According to Groupon CEO Eric Lefkofsky, “The bad news is that any time you shift from one business to another, you have to navigate change.”
Well, I think that just might go down as the understatement of the year.
You see, right now, GRPN is walking right in the middle of a most-hazardous, and very heavily trafficked road. Groupon isn’t yet a full-blown traditional e-commerce site, and it’s not supposed to be just a discount site.
So, is it any surprise that investors have shunned Groupon stock stock, squashing its value in a mass stampede to find the exits?
Can a company like Groupon transition itself into an entity capable of doing battle with the likes of Amazon or eBay? I have some serious doubts here, and judging by the share price move today, so does nearly all of Wall Street.
GRPN now trades around the $5.40 level, which is approximately 45% below the stock’s 52-week high. What this means is that at current levels, this will either turn out to be a fantastic buying opportunity … or the last exit before the pink sheets.
If you’re a very aggressive investor willing to roll the dice against the odds, then Groupon stock might look attractive here.
As for my money … well, I don’t want to put it out in the middle of the road to get squashed.
As of this writing, Jim Woods held no positions in any of the aforementioned securities.
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