Groupon shares dive on wider 4th-quarter loss, weak outlook
BY SANDRA GUY Business Reporter email@example.com February 27, 2013 3:38PM
Groupon headquarters in Chicago.
Updated: April 1, 2013 11:54AM
No sooner had a few analysts goosed Groupon’s stock price with optimistic forecasts than the reality of the Chicago daily deals site’s financial results released Wednesday sent the stock plunging.
Chicago-based Groupon’s stock is down $1.14, or 19.1 percent, at $4.84 in afternoon trading. Shares dropped 25 percent at the opening bell Thursday after the company released financial results Wednesday.
Groupon forecast sales and operating results far less than analysts had anticipated and reported a widening net loss.
Groupon said it expected first-quarter revenue to be $560 million to $610 million — short of analysts’ consensus projections of $650 million.
Heightening the concern was Groupon’s net loss in the holiday-influenced fourth quarter: The $81.1 million loss was greater than the year ago’s $65.4 million loss and free cash flow dropped 83 percent from a year ago to $25.7 million.
No one appears to be looking for a quick turnaround.
Analyst Sameet Sinha of B. Riley & Co. said he doesn’t expect to see Groupon make further improvements until the second half of the year, since productivity and efficiency solutions take a long time to implement.
Two analysts said late Wednesday they considered the fourth quarter to be a mixed bag because revenues grew 30 percent from a year earlier, to $638.3 million, in line with Groupon’s forecasts.
The issue that drove down the stock was the first-quarter outlook, which shows that customers are cutting back their spending more drastically than expected after the holidays, said Edward Woo, senior research analyst at Ascendiant Capital Markets.
Other concerns are Groupon’s weak international business and its strategy of taking a smaller cut of its daily deal revenues from merchants in an effort to keep the merchants it has and attract new ones. That strategy hurt profits.
The disappointing results, on top of a similarly weak report in the third quarter, led to continued speculation about how long CEO Andrew Mason can hang on. Analysts said late Wednesday they expect Mason to last at least one more quarter because the company is experimenting with the right business model and the right mix of goods to sell in a changing environment.
An obvious signal of Mason’s vulnerability, however, was the debut of Groupon Chief Operating Officer Kal Raman, considered a successor to the quirky and controversial Mason, on the earnings call. Raman said he believes Groupon can realize huge opportunities from further automating operations.
Raman said international operations require more work to be comparable to the North American business, and that a turnaround will take time.
“My focus is on technology and improving efficiency,” Raman said, calling the strategy “one playbook.”
Mason sought to put a favorable light on the latest quarterly numbers, saying, “Record billings growth this quarter is a clear signal that customers love Groupons.”
Mason said the company is diversifying away from its daily emails, attracting a wider audience with a mobile strategy and a searchable web marketplace. Nearly 40 percent of Groupon’s North American transactions are conducted on mobile devices, and its new web-search functions are proving popular, he said.
“Email now drives 50 percent of our transactions,” Mason said. “It’s hard to believe that just a short time ago we were a deal-a-day business.”
Analysts had expected a better showing, with two raising their outlooks prior to the earnings announcement.
Shares soared nearly 8 percent Wednesday to $5.98 ahead of the earnings call.
Groupon’s stock had more than doubled in recent months from a 52-week low in November. Yet the company, troubled by concerns that its constant business-model experiments cannot sustain it longterm, is trading 78 percent lower than its November 2011 initial public offering debut price of $20.