Groupon Inc (NASDAQ:GRPN), the group discount e-commerce company, has not had a good summer. And anyone holding Groupon stock has had an even worse time of it. After reporting disappointing Q2 results at the end of July, GRPN stock tanked.
By last week, shares were trading at $2.32 — an all-time low. However, on Monday investors saw a hint of blue sky when GRPN popped 4.24%, sitting at $2.46 to end the day. That’s two straight days of positive movement for GRPN.
The big question is whether this is the start of a recovery, or a brief respite from a slide that could see Groupon sink even lower.
Disappointing Q2 Earnings Hammered Groupon Stock
As July wound down, GRPN stock was trading in the $3.50 range. That’s a far cry from the frothy post-IPO days in 2011, when it topped $26, but it was up 8% or so since the start of 2019.
But on July 30, the company reported Q2 earnings and the market reaction was swift.
Revenue of $532.6 million was down 14% year-over year and the company recorded a loss of 7-cents per share, significantly off what analysts had been expecting.
Adding to the growing challenge for Groupon was a continued erosion of its business and customer base in virtually all areas of its operations. Revenue was down double digits in both the North American and international markets. While the local daily deals the company built its name on saw a 4% drop in revenue compared to last year, the segments investors had been looking to for sustained growth — travel and and e-commerce — suffered even steeper declines, with revenue down 18% and 21% respectively. The total number of active customers dropped to 46.2 million, down from the 47.2 million the company claimed in Q1.
Groupon’s CEO Rich Williams tried to put a positive spin on the situation, telling investors:
“With more than 45 million active customers worldwide and more than 200 million mobile downloads, we have built a scalable marketplace to capture the massive local commerce opportunity. As we sharpen our focus on engaging higher-value customers, we are seeing encouraging progress. Entering the second half of 2019, we remain committed to advancing our key strategic priorities to build the daily habit in local commerce and delivering value to customers, merchants and stockholders alike.”
The market wasn’t buying it and Groupon stock tanked, losing nearly a third of its value in the two weeks after — until gains on Friday and Monday.
Can Groupon Turn Things Around?
Groupon is in a really tough situation. As InvestorPlace’s Vince Martin pointed out a few months ago, nearly eight years after its IPO it’s still not clear that Groupon’s business model actually works. In fact based on quarter after quarter of declining revenue (10 straight year-over-year quarterly declines and only one gain in the past 15 quarters), there’s a pretty strong argument that the company has hit the wall in terms of what it can do.
Making the situation even worse, there are some strong competitors looking to scoop Groupon’s customers. One of these daily deal websites, Woot, is owned by e-commerce giant Amazon (NASDAQ:AMZN), who snapped it up in 2010.
Despite yet another disappointing quarter, Groupon is sticking by its full-year guidance of delivering an adjusted EBITDA of approximately $270 million. If manages to pull that off, it could be that in hindsight, the $2.32 Groupon stock hit last week will prove to be the bottom of the trough. But there are a lot of things that have to go right for GRPN to turn things around.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
