Wait wait wait …. you mean to tell me Groupon (GRPN) to this day still remains a giant disappointment? I did not see that coming.
I’m being facetious, of course. Groupon stock largely deserves the 6% setback it’s suffering today on the heels of its second quarter earnings announcement.
Though its top and bottom line were roughly in line with estimates and markedly stronger than the year-ago comparisons, the Groupon earnings announcement also confirmed something that has been quietly whispered about the daily deals company for a while now — the math of the business model just doesn’t imply any sort of long-term viability.
Groupon Earnings
All in all it wasn’t actually a bad quarter for the company. Groupon reported a profit of 16 cents per share on $738.4 million in sales.
On the other hand, when adjusting for items like the one-time profit from the sale of Ticket Monster, the bottom line was whittled down to a profit of only two cents per share of Groupon stock. Analysts were looking for a gain of three cents per share of GRPN and $740.3 million in revenue.
Fans and supporters of Groupon stock will be quick to point out that, despite the earnings and revenue miss, the top line still grew 3%, and the company swung from a loss of three cents per share in Q2 of 2014 to a small profit this time around.
It’s a weak argument, though. A 3% increase in revenue is a pittance compared to the scope of the efforts the company has made in the meantime, and the three-cent loss from a year ago was a GAAP number. Operationally, the company put up a bottom-line profit of one cent per share of Groupon stock in the second quarter of 2014, making the second quarter of 2015’s earnings figure considerably less impressive.
In other words, investors have little to get excited about. And it’s not as if the company is expecting things to get significantly better in the foreseeable future.
Looking Ahead for GRPN
For the current quarter, Groupon anticipates per-share earnings between a break-even and two cents on revenue of between $700 million and $750 million. Analysts had modeled averages of a profit of three cents per share of Groupon stock and a top line of $755.9 million. Still, the company is expecting a strong fourth quarter to finish the year on a higher note. Groupon offered full-year revenue guidance between $3.15 billion and $3.3 billion, versus estimates for $3.21 billion.
It’s an alarming amount of optimism from a company that’s still in the midst of a transition to a business model it still hasn’t proven it can make viable.
Although the company was founded on the idea of daily-deals, the product/model now is a combination of daily deals, direct sales of physical goods, local event promotions, and — most recently through the acquisition of Order-Up — a food-ordering and food-delivery service. None of those efforts, however, are apt to solve the revenue and profit-growth problem.
Bottom Line for Groupon Stock
While the Groupon earnings report for the second quarter was lackluster and the outlook was similarly tepid, there’s no denying CEO Eric Lefkofsky and his team are working very hard to turn things for the better. Investors — and all observers for that matter — are cheering for him, as the one thing Americans love more than a success story is a turnaround/redemption story.
Hard work alone, however, may not be enough to actually right the ship.
Kudos to the company for recognizing that drastic change was needed and then having the fortitude to begin effecting those changes. The businesses Groupon is getting into, however, are competitive and low-margin at best, and cash-drains at worst.
While diversity is a fine concept, being all things to all people isn’t always fruitful for a company. This is especially true for Groupon, which faces veteran competition on most of the fronts where it’s waging a new battle.
Ironically, though it handled things poorly the first time around — and let expenses soar — the company may be better served by focusing on doing online coupons really, really well, and forgetting all these other distracting (and costly) ventures.
GRPN would do well to profitably meet its revenue targets for the remainder of the year. Until then, Groupon stock isn’t worth your attention.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
