Groupon (NASDAQ:GRPN) served up the “disaster du jour” to investors Feb. 13, falling almost 14% in early trade after earnings that angered analysts. The GRPN stock one-day fall erased most of its gains for 2019, a year that’d been expected to produce better results.
Net income of $46.2 million, or 8 cents per share, on revenue of $800 million was not nearly good enough for Groupon stock with a consensus forecast for a 13-cent per share profit.
Fool me once, shame on me. Fool me twice, won’t get fooled again, as the Bush II-era saying goes.
With 570 million shares outstanding and a market cap of $1.93 billion, Groupon stock looks cheap. But looks can be deceiving.
Shares have been trading in a range from $6 to $3 each for years. The late-year tech wreck sent GRPN stock to the bottom of that range in December, but it had been recovering through 2019. Results sent the shares down to test the lows again.
The problem is that analysts have seen this movie before. Groupon traded as high as $26 per share right after its 2012 initial public offering. It was still trading at $12.60 at one point in 2013. Then its “daily deals” business model, in which merchants offer coupons redeemable for a great price if enough consumers sign on through an e-mail blast, grew stale.
With the shares down to the $3 range in late 2015, Amazon.com (NASDAQ:AMZN) alum Rich Williams was promoted to replace founder Eric Lefkofsky as CEO.
Williams streamlined the business, cutting headcount and international expansion. He even drew a $250 million investment from a venture fund backed by Comcast (NASDAQ:CMCSA).
In 2017 Williams rolled out Groupon+ , which linked consumer accounts to their credit cards through an app, eliminating paper vouchers. This also made offers easier to transmit, to a more-willing audience.
Williams started drawing admiring stories about the company becoming a “modern day loyalty program” again.
But growth hasn’t followed. The fourth quarter of 2018 was the 12th in a row where the company reported lower revenue and less customer traffic. Williams’ release on the numbers talked about a “challenging operating environment” — always a red flag — promising “bolder bets” in 2019, like a partnership with AMC to sell movie tickets.
Even TV analyst Jim Cramer, who had Williams on his show in December, acknowledged recently he had been wrong on Groupon.
That turns out to have been the right call.
The Copycat Exceeds
Groupon has also fallen behind Pinduoduo (NASDAQ:PDD), a 2015 Chinese start-up backed by Tencent Holdings (OTCMKTS:TCEHY) that already has a market cap of $29 billion, 15 times that of Groupon.
Pinduoduo’s business model is like Groupon on steroids. While Groupon deals are initiated by businesses, as a form of advertising, Pinduoduo deals are initiated by consumers. They choose what they want to get, then look for friends and family who will join them in buying it.
However, Pinduoduo may quickly follow Groupon into the bargain bin. Its shares fell sharply after the IPO lock-up period expired and a hack of its system unleashed a torrent of free coupons.
Bottom Line on Groupon Stock
This should be a great week for Groupon. Valentine’s Day often brings a flood of opportunities for two-for-one deals.
But analysts have been burned on GRPN stock. It’s doubtful many will be going in again unless Groupon can deliver what it hasn’t been able to deliver so far under Williams: top-line growth.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.