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Groupon shares nosedive as investors sell in reaction to slowing sales Groupon shares nosedive as investors sell in reaction to slowing sales
(4 days later)
Shares in Groupon plummeted Tuesday as the firm once billed as "the fastest growing company ever" said sales had slowed.Shares in Groupon plummeted Tuesday as the firm once billed as "the fastest growing company ever" said sales had slowed.
The daily deals site reported its first-ever quarterly profit as a public company on Monday after stock markets had closed. Revenues increased 45% on the year. But the sell-off began as investors took fright at numbers that seem to suggest a slowing appetite for daily deals.The daily deals site reported its first-ever quarterly profit as a public company on Monday after stock markets had closed. Revenues increased 45% on the year. But the sell-off began as investors took fright at numbers that seem to suggest a slowing appetite for daily deals.
The stock price plummeted in after-hours trading and continued to fall when the markets opened Tuesday. Groupon's shares fell more than 26% to close at $5.53. Its shares are now worth about a fifth of their $31 high.The stock price plummeted in after-hours trading and continued to fall when the markets opened Tuesday. Groupon's shares fell more than 26% to close at $5.53. Its shares are now worth about a fifth of their $31 high.
Groupon, which sells discount coupons to local businesses, was the fastest company ever to reach a $1bn in sales. Year on year Groupon is still growing fast but revenue rose just 2% from the first quarter. On a conference call with analysts chief executive Andrew Mason said Groupon Goods, a new division which sells items like heart-rate monitors, jewelry and yogurt makers, was growing fast.Groupon, which sells discount coupons to local businesses, was the fastest company ever to reach a $1bn in sales. Year on year Groupon is still growing fast but revenue rose just 2% from the first quarter. On a conference call with analysts chief executive Andrew Mason said Groupon Goods, a new division which sells items like heart-rate monitors, jewelry and yogurt makers, was growing fast.
But the company's profit margin on goods is small compared to its core business of selling vouchers for local services like waxing, massage or discounts at restaurants.But the company's profit margin on goods is small compared to its core business of selling vouchers for local services like waxing, massage or discounts at restaurants.
Groupon's billings – the amount of money it takes before it pays a cut to merchants – slipped 5% in the second quarter from the first three months of the year. Mason described the results as a "solid quarter" but said weakness in Europe had created "significant drag" and cost the company over $70m in billings as people had not taken up offers of "laser hair removal and luxury hotel stays in Monaco".Groupon's billings – the amount of money it takes before it pays a cut to merchants – slipped 5% in the second quarter from the first three months of the year. Mason described the results as a "solid quarter" but said weakness in Europe had created "significant drag" and cost the company over $70m in billings as people had not taken up offers of "laser hair removal and luxury hotel stays in Monaco".
Stifel Nicolaus analyst Nat Brogadir said the share price fall was "punishing but somewhat deserved".Stifel Nicolaus analyst Nat Brogadir said the share price fall was "punishing but somewhat deserved".
"Investors either want to see extreme growth and modest profitability or modest growth and good profits. It doesn't look like either are coming to fruition here," he said."Investors either want to see extreme growth and modest profitability or modest growth and good profits. It doesn't look like either are coming to fruition here," he said.
So Young Lee at SunTrust Robinson Humphrey described the results as "disappointing". She said she was worried by the declining number of customers Groupon was adding, 1.2 million in the second quarter down from 3.1 million in the first quarter. "In the long term, Groupon's not even four years old and it has done some remarkable things but there are a lot of concerns," she said.So Young Lee at SunTrust Robinson Humphrey described the results as "disappointing". She said she was worried by the declining number of customers Groupon was adding, 1.2 million in the second quarter down from 3.1 million in the first quarter. "In the long term, Groupon's not even four years old and it has done some remarkable things but there are a lot of concerns," she said.
Groupon went public last November in a blaze of publicity. Founder Andrew Mason initially played the fool, chugging beer in meetings and being photographed with a cat on his head. But the company's phenomenal growth attracted Silicon Valley investors and the attention of Google. As it reached a billion in sales Forbes magazine described it as the fastest growing company ever.Groupon went public last November in a blaze of publicity. Founder Andrew Mason initially played the fool, chugging beer in meetings and being photographed with a cat on his head. But the company's phenomenal growth attracted Silicon Valley investors and the attention of Google. As it reached a billion in sales Forbes magazine described it as the fastest growing company ever.
The share sale was the largest tech IPO since Google and came after the daily deal site had rejected a $6bn takeover offer from the search giant. Groupon raised $700m selling shares at $20. The company was briefly valued at over $13bn, it is now worth less than $4bn. The Groupon IPO ushered in a series of disappointing share sales from a new generation of internet companies including Zynga, the online games firm, and culminating in Facebook's disastrous IPO in May.The share sale was the largest tech IPO since Google and came after the daily deal site had rejected a $6bn takeover offer from the search giant. Groupon raised $700m selling shares at $20. The company was briefly valued at over $13bn, it is now worth less than $4bn. The Groupon IPO ushered in a series of disappointing share sales from a new generation of internet companies including Zynga, the online games firm, and culminating in Facebook's disastrous IPO in May.
Zynga, owner of hit games including Words With Friends and Draw Something, has lost close to 70% of its value this year. Facebook's shares fell below their launch price of $38 on their second day of trading and have now fallen to $20.Zynga, owner of hit games including Words With Friends and Draw Something, has lost close to 70% of its value this year. Facebook's shares fell below their launch price of $38 on their second day of trading and have now fallen to $20.
Forrester research analyst Sucharita Mulpuru said: "Those valuations were all about how much you can get someone to pay for your stock, they had nothing to do with fundamentals at all. It was about finding a greater fool to pay up."Forrester research analyst Sucharita Mulpuru said: "Those valuations were all about how much you can get someone to pay for your stock, they had nothing to do with fundamentals at all. It was about finding a greater fool to pay up."
She said she believed that Facebook would eventually recover from its IPO debacle. "That's a strong, profitable business," she said. But the problems for Groupon and Zynga may be more fundamental. "They may just be fads," she said.She said she believed that Facebook would eventually recover from its IPO debacle. "That's a strong, profitable business," she said. But the problems for Groupon and Zynga may be more fundamental. "They may just be fads," she said.
Comments
18 comments, displaying first
14 August 2012 6:25PM
50% of teeth whitening is not a business.
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14 August 2012 6:34PM
It's a very annoying product. I briefly subscribed to the daily deals package. All it did was offer me things which I didn't want or consider. I'm really not into dental products and Spas. Furthermore, 90% off the price of a product, when i don't even know its true value, is not a 'bargain' - it smells of a scam. And if you independently google these prices, you find they are not much lower (if at all).
I think there is a concept to be made, Groupon won't do it - but a highly tailored service offering distinct deals would work. E.g. I use Amazon - if Amazon was to come up with selected discounts, just for me - i might go for it (their recommendations system is certainly very clever).
But seriously, I have better things to do then discover which Spa is offering 50% off hot stones on my back every day.
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14 August 2012 6:38PM
This is one of those concepts that seems, intuitively, to be viable. Since no company has truly figured out local e-commerce, it seemed that Groupon's approach to daily deals offered promise. The algorithmic data generated by their business model offers great potential to local merchants. But we can now see that assumptions were too optimistic. How many laser surgery treatments can I afford to buy or need?
Last quarter revenues grew 45% but the rate of growth slowed and macro concerns, especially in Europe, made many of their daily deals unattractive. Buyer fatigue clearly set in.
Where does the company go from here? Retrench, align costs to revenues and retain as much of their talent as possible for when economies improve and/or their deals are more aligned to today's consumer.
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14 August 2012 6:41PM
"a highly tailored service offering distinct deals would work. E.g. I use Amazon - if Amazon was to come up with selected discounts, just for me - i might go for it (their recommendations system is certainly very clever)"
Well certainly not clever enough because they already have probably the second biggest Groupon like service called Living Social. Guess you never got the memo, bogged down with their book recommendations!
Link to this comment:
14 August 2012 6:52PM
So right you are! And 50% of nothing is still nothing%.
Link to this comment:
14 August 2012 8:01PM
They have a profit making/loss sharing system geared towards the businesses they promote. Meaning the business featured offers a discount of 50 percent, from which they take 25 percent and the business takes a hit of 75 percent! Same with social living, that is why you see mostly 'services' being offered, a retailer with a tangible product couldn't bear the loss.
However i cant imagine how low the cost of running thier operation must be, all they do is push emails through their database.
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14 August 2012 8:19PM
I've recently figured out that it's not the bargain that I first imagined.
Here in the US for instance, the small print for food coupons point out that a compulsory 18% tip is added to the bill! I hadn't realised it and was tipping again after I received the bill. I suppose I could argue with the vendor that I want to decide how much to give, but that isn't the point really. I just don't like feeling that I'm being scammed by small print. The Groupon saves about 4 or 5 dollars which is better than nothing but I can get the same savings from coupons in the local rag so not worth chasing to be honest.
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14 August 2012 8:30PM
Good. Horrible, parasitic business model.
Link to this comment:
14 August 2012 8:54PM
Unsustainable, greed driven and fundamentally flawed, feedback I have heard from business both large and small is that it is an absolutely terrible company fronted by shark like commission salesman.
Analysts belatedly started questioning the business model a significant time ago, so why did it take so long?
Link to this comment:
14 August 2012 9:07PM
crap business model and, they plus the other daily deal websites are crap to deal with. They insist on at least 50% off RRP and they try and then get 50% commission, normally you knock em down to 25%, then you get paid after 20 days the deal ends. They have nothing unique only a big subscription database, what other KSF's do they have...?
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15 August 2012 12:20AM
They rang me persistently and I told them they were a flash in the pan. Annoyed me so much that the third time round I said that I was going to put my prices up. Which I did, and still the customers came. I hadn't done it for years, thinking that I would lose business (being self-employed is a quagmire of uncertainty and self-doubt).
Haven't looked back since - ha!
Link to this comment:
15 August 2012 4:28AM
Irrationality by the share-buying public is never rewarded in the medium to long term. People always get what they pay for,
Link to this comment:
15 August 2012 6:16AM
"Those valuations were all about how much you can get someone to pay for your stock, they had nothing to do with fundamentals at all. It was about finding a greater fool to pay up."
Pretty much a very good summary of most of the recent Tech IPO's.
Link to this comment:
15 August 2012 9:14AM
This is how it works people:
Too big too fail banks are underwriters for the IPO, they make the valuation as high as possible E.G (facebook 100 billion!) too make the maximum fee's on the IPO they then take positions to make money on the initial interest that the MSM will hype up. they exit the positions with massive profits and the muppets that bought the stock lose everything.
Its called pump and dumping anyone who buys into major tech IPO's are going to get rinsed 100% of the time.
Anyone still dealing with Wall street deserve what they get its nothing more than wall to wall criminality and corruption on a scale never before seen in history.
This is what happens when there is absolutely no accountability for financial crimes.
Link to this comment:
15 August 2012 9:36AM
This is a poor worthless stock? Really?
As KeiserCelente says, the people who wanted to make the money on it did, as they always do.
They sold at $31 to make the money they wanted to, it is the idiots who bought in afterwards and still hold them that have lost and should have known they would.
Microsoft, Apple and Google make things, Groupon and Facebook don't and are concepts. Where is lastminute.com now, once you couldn't move for it and Martha Lane Fox?
12 years after the dot.com bubble it is still happening because there are idiots who still believe they are easy money, when it is actually only those in at the ground floor that actually ever get any of it.
And it will always work because of that and is no different to the days of snake oil salesmen.
Link to this comment:
15 August 2012 11:05AM
If you get the shares on Groupon though you only pay $2.80.
Link to this comment:
15 August 2012 11:13AM
If people are going to buy into 'Tech' then make sure the company produces 'Tech' - Facebook and Groupon are nothing but front ends sitting on 'Tech', they are fads which will pass in time. People are already turning against social media and it's ilk - it will not be long until the new/latest social media front begins, then expect the circle to repeat.
As both Halo572 and KeiserCelente have said, anyone that bought into these IPO's was sadly misled and sold up the river without a boat. Things will only get worse when the trading restrictions on FB shares is lifted, see that stock plummet further as 1.2bn shares become available to be dumped on the market.
Link to this comment:
15 August 2012 2:36PM
Haaa! Point taken - I deffo didn't get the memo. But Amazon are definitely a clever company. Rapacious in destroying competition on the inside, good at taking my money and I still don't hate them? Its a good long term stock probably, not sure about the short term though. For that, one has to take risks - and unfortunately whoever bet on Groupon lost..
next big risk play is probably Nokia - you will at least quintuple your money in 5 years or it will go bust.
Link to this comment:
Comments on this page are now closed.
Groupon's share offering loses its allure
1 Nov 2011
In less than 18 months Groupon has gone from being championed in Forbes magazine as 'The Fastest Growing Company Ever,' to a company analysts are calling a busted flush
10 Jun 2011
Only a 'fool' would invest in Groupon, claims analyst
7 Dec 2011
Groupon breaches ASA code for 49th and 50th time in 2011
4 Jun 2012
Groupon slumps to lowest price ever
9 Feb 2012
Groupon loss disappoints Wall Street
Groupon plans scaled back flotation as eurozone crisis deflates plans
20 Oct 2011
Online discount firm plans IPO of less than 10% of company valued at 'just' $12.5bn – original estimates were $20-30bn
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Daily discount website that once grew rapidly faces declining momentum as shares fall 25% to an all-time low of $5.60
Shares in Groupon plummeted Tuesday as the firm once billed as "the fastest growing company ever" said sales had slowed.
The daily deals site reported its first-ever quarterly profit as a public company on Monday after stock markets had closed. Revenues increased 45% on the year. But the sell-off began as investors took fright at numbers that seem to suggest a slowing appetite for daily deals.
The stock price plummeted in after-hours trading and continued to fall when the markets opened Tuesday. Groupon's shares fell more than 26% to close at $5.53. Its shares are now worth about a fifth of their $31 high.
Groupon, which sells discount coupons to local businesses, was the fastest company ever to reach a $1bn in sales. Year on year Groupon is still growing fast but revenue rose just 2% from the first quarter. On a conference call with analysts chief executive Andrew Mason said Groupon Goods, a new division which sells items like heart-rate monitors, jewelry and yogurt makers, was growing fast.
But the company's profit margin on goods is small compared to its core business of selling vouchers for local services like waxing, massage or discounts at restaurants.
Groupon's billings – the amount of money it takes before it pays a cut to merchants – slipped 5% in the second quarter from the first three months of the year. Mason described the results as a "solid quarter" but said weakness in Europe had created "significant drag" and cost the company over $70m in billings as people had not taken up offers of "laser hair removal and luxury hotel stays in Monaco".
Stifel Nicolaus analyst Nat Brogadir said the share price fall was "punishing but somewhat deserved".
"Investors either want to see extreme growth and modest profitability or modest growth and good profits. It doesn't look like either are coming to fruition here," he said.
So Young Lee at SunTrust Robinson Humphrey described the results as "disappointing". She said she was worried by the declining number of customers Groupon was adding, 1.2 million in the second quarter down from 3.1 million in the first quarter. "In the long term, Groupon's not even four years old and it has done some remarkable things but there are a lot of concerns," she said.
Groupon went public last November in a blaze of publicity. Founder Andrew Mason initially played the fool, chugging beer in meetings and being photographed with a cat on his head. But the company's phenomenal growth attracted Silicon Valley investors and the attention of Google. As it reached a billion in sales Forbes magazine described it as the fastest growing company ever.
The share sale was the largest tech IPO since Google and came after the daily deal site had rejected a $6bn takeover offer from the search giant. Groupon raised $700m selling shares at $20. The company was briefly valued at over $13bn, it is now worth less than $4bn. The Groupon IPO ushered in a series of disappointing share sales from a new generation of internet companies including Zynga, the online games firm, and culminating in Facebook's disastrous IPO in May.
Zynga, owner of hit games including Words With Friends and Draw Something, has lost close to 70% of its value this year. Facebook's shares fell below their launch price of $38 on their second day of trading and have now fallen to $20.
Forrester research analyst Sucharita Mulpuru said: "Those valuations were all about how much you can get someone to pay for your stock, they had nothing to do with fundamentals at all. It was about finding a greater fool to pay up."
She said she believed that Facebook would eventually recover from its IPO debacle. "That's a strong, profitable business," she said. But the problems for Groupon and Zynga may be more fundamental. "They may just be fads," she said.