Latest Groupon Dissapointment is in Danger of Triggering an Exodus
Groupon (GRPN:NSQ), famous deal-of-the-day website that launched in November 2008 and went public only a year ago, is once again unsettling investors with disappointing results. The shares of the company lost almost a fifth of their value after the reported second quarter revenues were below analyst expectations.
The company has already earned a bit of a reputation with its series of financial hiccups. In March, just six months after its IPO, Groupon had to perform an accounting restatement and virtually wiped its operating profit for the last month of 2011. Income was recalculated down by $30m (£19.1m), completely negating, and some, the $15m (£9.5m) that was initially reported. Revenues were also decreased by $14.3m (£9.1m) down to $491.7m (£312.9m). The company faced harsh criticism from the Securities and Exchange Commission over its flawed accounting methods. For the first quarter of 2012, Groupon (GRPN:NSQ) seemed to be doing well, reporting an 89 per cent increase in revenues compared to the same period in 2011. Shares on the day when the announcement was made jumped by 17.5 per cent to $13.80 (£8.78), still way below the initial public offering price of $20.
!m(/uploads/story/249/thumbs/pic1_inline.png)Groupon and Wall Street had high expectations for the second quarter revenues but the reality is bitter. Reported revenues equal $568m (£361.5m), which falls short of what Wall Street expected. Growth was only 45 per cent, a substantial decrease compared to the first quarter’s encouragingly high numbers of 89 per cent. The news pushed down prices of the stock to a life-time low of $6.05 (£3.85). Of course when Groupon themselves predict that revenue growth will shrink even more with a possible bottom of 35 per cent, investors are more than concerned, said Sameet Sinha, analyst at B. Riley & Co.
“It seems like they don’t have enough control over various aspects of their business. Will they be able to fix the situation by the end of this year? If not, we could see a very significant slowdown in growth in 2013.”
Chief executive Andrew Mason claims the ongoing investments in both technology and infrastructure are partly to blame for the disappointing performance. He also believes that those investments will pay off in the long run. With the company not performing as well in North America, it now turns to Europe where it has the potential to improve its sales by using technology trends such as mobile usage, personalisation and data collection. According to Mason about a third of the transactions in North America were placed through a mobile device and those customers spent an average of 50 per cent more than desktop users. Groupon hopes that the new management in Europe will succeed in bringing the website closer to its customers while at the same time decreasing marketing costs. The solution, according to Mason, will lie in finding the balance between offering better discounts to consumers in Europe and at the same time improving the service it provides to merchants. If the company succeeds in reaching a similar depth of market penetration of Internet users in Europe to the one they already have in North America, then things should start to look a lot better for them.
Groupon right now falls in with Facebook and Zynga in the group of internet and social media companies that come on the scene with a blast, bringing elevated expectations but later deliver slow growth and overall disappointing results. If Groupon takes a hold of its financial situation and manages to infiltrate the European market, then investors might find some solid ground beneath their feet. Now they are simply standing on empty promises of better future results.
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