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So Much for Q2! Groupon Blasted After Earnings (GRPN)

Disappointing results reveal how tough it will be for GRPN to transform itself into an e-commerce player


Groupon (GRPN) stock tumbled hard in after-hours trading as weak guidance and a top-line miss overshadowed second-quarter earnings that were in line with analysts’ estimates.

groupon stock grpnThe online daily deal and e-commerce company is in the early stages of a transformation plan, so Wall Street’s expectations were muted. But after a huge run-up the day before earnings, Groupon stock became a victim of “sell the news” when earnings failed to surprise to the upside.

GRPN jumped more than 9% Monday in anticipation of its quarterly earnings report, but the stock is still deep in the red on the year — and should Tuesday’s post-market losses hold, it’ll be deeper still. Before the pre-report rally, Groupon stock was off 40% for the year-to-date, and fell as much as 50% back in the spring.

For the most recent quarter, GRPN’s net loss widened to $22.9 million, or 3 cents a share, from last year’s loss of $7.6 million, or 1 cent.

After excluding certain items like stock option expense, Groupon’s adjusted earnings came to a penny a share, which matched Wall Street forecasts.

Revenue, however, came up a bit short. Groupon’s top line expanded 23% to $751.6 million in the second quarter, compared with $608.7 million in the year-ago period. Analysts projected Groupon to post 25% revenue growth to $761.8 million.

Groupon Stock Slammed on Forecasts

Worst of all for Groupon stock, Wall Street didn’t like what it heard about the future.

GRPN forecast third-quarter adjusted earnings of flat to 2 cents a share, disappointing analysts who were looking for earnings to come in at 3 cents a share for the current quarter. Groupon’s revenue forecast likewise failed to wow the Street. Analysts are modeling third-quarter revenue of $761.1 million, and GRPN bracketed that figure by guiding to revenue of $720 million and $770 million, which leaves a lot of room for the company to miss expectations.

GRPN is investing heavily to become an e-commerce player amid tepid demand for daily deals. Costs associated with the transformation led to the deep net loss in the quarter, even as demand grew significantly.

Gross billings, which reflect the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds, increased 29% to $1.82 billion from $1.41 billion in the second quarter of last year.

Active customers, or customers that have purchased a voucher or product within the last 12 months, rose 25% to 53.2 million, GRPN said.

Bottom Line

The latest news is a setback for Groupon stock as the company struggles to change its business into a more traditional business of selling goods, rather than long-lived offers. The key is for GRPN to convert its large user base of deal-seekers into shoppers — in a very competitive environment.

Groupon earnings still have a long way to go before GRPN can justify trading at 28 times forward earnings.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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