Groupon (GRPN) stock jumped as much as 5% on Monday, as investors bet on a strong first quarter from the daily deals site.
Groupon could use a breakout quarter to jumpstart its stock, which is flat in the last year and down 72% from the GRPN IPO in 2011. Investors will find out if they were right when Groupon reports after markets close on Tuesday.
Groupon, which came onto the map in a hurry as the fastest-growing company of all time, is making a difficult transition from direct-to-consumer digital marketing (email blasts) to becoming a legit e-commerce platform in its own right.
While GRPN stock has managed to beat or match earnings per share estimates for eight consecutive quarters, there’s still not a whole lot to look forward to with this stock.
A Fall From Glory
Sure, you’d think that a 70% walloping since its IPO would be enough punishment for GRPN stock. But this quarter’s Groupon’s earnings announcement could spark another selloff if it fails to reveal any exciting new developments. There isn’t much excitement expected this quarter. Analysts are calling for EPS to come in at a single cent, swinging to a small profit from the year-ago penny-per-share loss.
I’m on the edge of my seat. What about revenue growth? Surely that’s going gangbusters!
No, it’s not. In 2010, GRPN was growing sales at 2,000%. The year before that, revenue grew from $5,000 to $14.5 million — in one year! This quarter, Groupon is expected to grow revenues by 10% year-over-year, to $830 million. Its growth is dead.
Other than revenue, EPS and guidance — analysts expect EPS of 14 cents on $3.53 billion in revenue in 2015 — investors will also want to see increasing active customers and customer spend. Ask Twitter (TWTR) about how much Wall Street obsesses over user growth, especially for mobile companies, such as GRPN.
While the times of high-flying growth at any company must one day come to an end, the longer-term problem with Groupon is simply the low barrier to entry in its industry. Google (GOOG, GOOGL), Facebook (FB), RetailMeNot (SALE) and Amazon (AMZN) all represent current or potential threats to Groupon’s stranglehold on the local deals market.
Amazon, by the way, owns about a third of LivingSocial, and you can bet your bottom dollar AMZN will do whatever it can to defend its investments and, more importantly, its status as the pre-eminent e-commerce platform.
Imagine a local deals functionality built into Google Maps that could alert you to deals and upcoming events as you were strolling down the street or taking a road trip. If it cared to, Apple (AAPL) could also take a big slice of this pie.
Bottom line? There is simply no compelling reason to have GRPN as a long-term holding. If Groupon shows on Tuesday that it can be consistently profitable, then it may linger around for a while. If the quarter’s disappointing, however, it’ll be more losses for GRPN stock.
As of this writing John Divine was long shares of GOOG stock, GOOGL stock, and AAPL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.