This didn't take very long. Groupon's second-quarter sales missed estimates because of the dropping popularity of online coupons. I wonder if investors knew what they were getting into when they bought into the company when it held its initial public offering in November. Shares have dropped 62 percent since then.
According to the earnings story, the company hasn't built out new areas of growth fast enough, while demand for daily deals has dropped. Meanwhile, the company is planning a hiring spree in Palo Alto, to staff its planned technology products such as Groupon Scheduler, an online appointment-booking system, and a loyalty program named Groupon Rewards. What's more, the earnings show that Groupon is particularly susceptible to currency weakness in Europe, as that region's problems ate into international revenue, which makes up more than half of the company's sales.
I wonder how low that share price will go-- and how sustainable the business will be in the longer run. Groupon's biggest rival Living Social seems to have fewer problems. The site narrowed its losses in the second quarter after revenue more than doubled to $138 million from the pervious year, the story says.
1 comment:
If someone at Columbia wants to write a case on how not to do an IPO, they should look at Groupon. During the IPO process, the company got in trouble for an internal memo that forecasted results not in the S-1, the roadshow had to be delayed, and the numbers had to be restated. Ugly.
Since then, investors have stopped believing a lot of the Groupon story. To summarize, the feeling was always that once a customer was acquired, there's no further acquisition cost so every time they spend in the future, it's all profit. Unfortunately, believers missed one key point: in order to make these economics work, you actually have to drive loyalty.
With so much competition in the space (LivingSocial, Gilt, Yelp, KGB, etc etc), customers are not loyalty to any one particular deal provider. Without that, they have to spend money on acquiring more customers and....well, Ms. Weed pointed the financial results out in her original post, and they are not pretty (although I'm sure Ms. Weed is).
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