At the time of going public, Groupon Inc (NASDAQ:GRPN) had a lot going for it — a unique idea, the backing of tech superstar Amazon.com Inc. (NASDAQ:AMZN) and a massive buzz on Wall Street. Fast forward five years, and GRPN stock has been on a rollercoaster ride as management tries to convince investors that the business has the ability to grow and change with the times.
Over the past three months, GRPN stock has lost nearly 35% on worries about whether the firm would be able to pull off its turnaround plans.
This dip in price has been seen by some as an opportunity to buy, but based on Groupon’s lack of financial stability and an increasingly competitive market, traders might want to steer clear until the firm shows further signs of resuscitation.
Groupon’s Financials Are Shaky
In an effort to make its business stronger, management has made an effort to scale down the business and operate in fewer countries. Last year, GRPN went from operating in 47 countries to doing business in just 26.
At face value, this strategy could be a good one for GRPN, as it gives the company a chance to focus only on profitable markets and cut back on expenses.
However, scaled back operations coupled with signs of wavering growth is worrying for investors, especially those hoping to make money on GRPN stock over the next year. Groupon’s most recent earnings report showed that gross billings decreased by 2%.
This news caused GRPN stock to pull back more than 20%, and rightfully so, as it shows that investors may have to wait a while before the firm’s financials stabilize and growth gets back on track.
While management has committed to making Groupon a success despite the changing e-commerce landscape, there’s no guarantee that a turnaround will even be possible. In fact, GRPN has several factors working against it when it comes to revamping the company’s image.
Groupon came on the scene as a daily-deals site, and the firm has had a hard time shedding that image. Despite the addition of Groupon Goods and Getaways, which offer consumers a chance to buy products and book holidays, the firm is still known for it’s local offers and subscription service. When it comes to making purchases online, Groupon isn’t the place that most consumers start.
Competition Is Fierce
The fact that Groupon is struggling to change its image is exacerbated by the fact that there are quite a few big-name competitors out there that have been very successful in the e-commerce space. This is a problem for Groupon sales, but also for GRPN stock.
Not only is Groupon struggling to get in front of consumers, the firm is also a last-choice for investors looking to add e-commerce to their portfolios. There are so many better buys out there, like companies that are both financially sound and well-established within the industry. Not only that, but GRPN is also competing against a host of brick-and-mortar firms as well, many of which are safer bets despite the challenges facing the retail sector.
Groupon could very well be due for a rally, but buying GRPN stock now is a risky bet. The firm’s turnaround has yet to show any promise and right now the company looks to be stuck in a rut without much hope of climbing its way out. Investors would be wise to wait for more signs of life in GRPN stock before adding it to their portfolios.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.