Groupon Plunges 20% on Weak Deal Growth

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Stephen Yang / Bloomberg via Getty Images

Groupon CEO Andrew Mason at the Nasdaq MarketSite in New York City on Nov. 4, 2011

Chicago-based daily-deals website Groupon watched its already discounted stock price plunge by 20% after the company reported sales numbers that failed to impress Wall Street. Groupon said weakness in Europe and foreign-currency woes contributed to its poor report. Groupon, which sends out e-mail discounts, is down a startling 71% from its IPO price less than a year ago. The company went public last November at a valuation of nearly $13 billion. Groupon is now worth $4.8 billion. Company insiders cashed out over $800 million before the firm even went public.

“We had a solid quarter despite challenges in Europe and continued investment in technology and infrastructure,” Groupon CEO Andrew Mason said in a statement. “We’ve deepened our relationships with a growing base of merchants and customers worldwide, demonstrating progress as we work to unlock the opportunity in local commerce.”

(MORE: Was the Social-Media Tech IPO Boom a Big Scam?)

Here’s the problem with Groupon: the company’s meteoric growth rate has slowed. So while its rapid early growth might have explained a $10 billion market value a year ago, the company’s current sales do not justify anything close to that valuation. Is it any wonder that Groupon stock is now hovering at a 52-week low?

There’s another, more fundamental problem with Groupon. Neither the company nor its top executives appear able to convince the market that they are trustworthy. The discount website has had to restate its own financial results several times. Groupon also famously attempted to exclude marketing costs, which make up the bulk of its expenses, from its sales figures, which would have made its results appear better than they were. That stunt attracted the attention of the Securities and Exchange Commission, which put the kibosh on the highly dubious accounting maneuver. Wall Street is now applying a credibility discount to Groupon.

As Morgan Stanley’s Scott Devitt deadpanned on Tuesday: “Investors may be beginning to question management credibility as Groupon continues to experience growing pains in its third quarter as a public company.”

(MORE: Groupon Faces SEC Probe, Investor Lawsuit as Stock Hits New Low)

Earlier this year, just days after “an accounting snafu” forced the discount website to reveal a greater-than-expected fourth-quarter loss, the company was hit with a shareholder lawsuit accusing its top executives of a “fraudulent scheme” that “deceived the investing public” about the company’s prospects and business. Groupon is also the subject of an ongoing investigation by the Securities and Exchange Commission.

This helps explain why Groupon cratered so hard on Monday, despite hitting Wall Street profit and forecast targets. Groupon’s revenue increased 45% over the year to $568.3 million, just shy of the $573 million that Wall Street analysts expected, per CNNMoney. As Business Insider observed, Groupon’s “gross billings” have plateaued, but apparently no one on Wall Street, at least not the company’s underwriters, saw that coming. New York Times reporter Peter Eavis noted on Monday that Groupon’s executives “needed to deliver a candid, laser-focused plan on how they are going to right wrongs. The call was anything but. Not a good sign.” Wall Street does not trust Groupon.

14 comments
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Keltari
Keltari

Do people still use Groupon?  Sure it was a brief fad for a bit, but I dont know anyone who actually used it.  There is not much use in getting a discount on stuff you are never going to buy.

RobertSF
RobertSF

If you ever see Kevin O'Leary (who's a dead ringer for The Simpson's Mr. Burns) on Dragon's Den or Shark Tank, one of the questions he asks to judge the quality of an investment idea is, "Can anyone else do this?"

In other words, if there's no legal, technical, or financial barrier to entry, and Tom down the street can just as easily do Tom's Coupons as Groupon can do theirs, then it's probably not a good investment.

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Sara Rose
Sara Rose

The concept is too easy to copy. In my small corner of Oregon alone, there must be 3 or 4 locally-generated Groupon-like programs.

therantguy
therantguy

Nobody saw the gross billings plateau? Are they idiots? Groupon's entire model is based on finding more and more businesses to bring into the program. By definition, there are only so many businesses that can (or will) do a Groupon and given that retention is horrible (i.e. companies rarely do a second Groupon because the discounts/fees are absurd) the plateau (and eventual decline) is inevitable. Anyone with an ounce of common sense can see Groupon has more in common with a pyramid scheme than a regular company.

Bonnie K. Gregory
Bonnie K. Gregory

That stunt attracted the attention of the Securities and Exchange Commission, which put the kibosh on the highly-dubious accounting maneuver...KingofProfits.blogspot.com

AndywseSoo
AndywseSoo

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Geneva
Geneva

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Geneva
Geneva

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Geneva
Geneva

 Herbert replied I didnt know that a single mom can make $5913 in a few weeks on the network. did you look this (Click on menu Home)