Just over 12 months later, it?s hard to argue with that call. Groupon has plummeted 88% from its IPO price of $20. Even Facebook (NASDAQ:FB), after its botched IPO, looks good compared to Groupon, with a fall of ?only? 40% since its initial offering back in May.
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Bad News Keeps on Coming for Groupon Investors
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Groupon?s latest stumble?a one-day 30% plunge to an all-time low of $2.76?came on November 9, after the company released yet another disappointing earnings report.
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In the third quarter, Groupon?s revenue rose 32% from a year ago, to $568.6 million. The company lost $3.0 million, or nil per share, compared to a loss of $54.2 million, or $0.18 a share, a year ago. Both figures missed the Street?s expectation of $0.04 a share in profits on revenue of $590 million.
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Groupon CEO Andrew Mason pointed ?continued challenges in Europe? as the main reason for the disappointing results. But that?s an oversimplification of the problems at Groupon. More worrying is the fact that its revenue growth has continued to slow as the daily deal craze fizzles.
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?In the fourth quarter of 2011, in its first earnings report as a public company, Groupon said its revenue nearly tripled,? writes the San Jose Mercury News. ?That fell to 89 percent in the first quarter of this year, 45 percent in the second quarter and 32 percent in the third.?
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What?s more, Groupon has never turned a profit, either prior to its IPO (see page 7 of its SEC registration statement) or after.
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Five Key Reasons Why Groupon Is Struggling
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Here are five other reasons why the daily deal site has fallen so hard in the past year. They also provide a good illustration of things to keep in mind when you?re deciding whether to add any new stock to your portfolio:
- Groupon faces stiff competition: At the end of the second quarter, Groupon controlled 53% of the daily deals market in the US, down from 56% in the previous quarter, according to data from industry research firm Yipit.
You have to think they?re regretting that decision: Groupon?s market cap?the value of all its outstanding shares?is now just above $2 billion.
- Groupon?s business model is easily duplicated: The reason for the heightened competition? Groupon?s business model?of sending out daily emails offering recipients deals on a wide range of products or services?is easily copied.
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However, selling products directly gives Groupon lower profit margins than the daily deals business, under which it simply connects vendors with customers and takes a cut of the sale. The company also faces massive competition in this space, including Amazon.com (NASDAQ:AMZN).
- Groupon?s customers are frustrated: The appeal of the daily deal coupons is clearly wearing off for the consumer. That?s partly because the discounts often come with strings attached that make them less convenient than they seem.
- Groupon has a long record of accounting issues: The company has run afoul of the SEC on numerous occasions, including having to restate its 2011 fourth quarter earnings, as Jim Fink writes in ?Groupon?s Cooked Books: Beware IPOs With Shady Histories?:
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That?s just one of the problems the company has had with overstated results. Others included two orders from the SEC to refile its registration statement in the run-up to the IPO. In the first instance, in August 2011, Groupon understated its operating losses by $120 million. The second time, the SEC ordered the company to lower its 2010 revenues by $400 million to reflect only net revenues and not revenues paid out to vendors.
- Groupon has a turnover problem: The company has now gone through three COOs in two years. In addition, in August it was revealed that Groupon?s head of national sales, Lee Brown?who had only been with the company since December 2010?was leaving. The news came shortly after the departure of Jayna Cooke, one of the company?s leading salespeople.
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This article by Chad Fraser was originally published on Investing Daily.
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No positions in stocks mentioned.
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