August 14, 2012

Groupon Leaves Investors Unimpressed With Results

Lee Rannals for - Your Universe Online

Groupon gave its investors some lackluster news, reporting lower than expected second-quarter results.

The online coupon company grew quickly by offering up its users daily discounts on local services to millions of online followers. However, increasing competition by similar companies is proving to be difficult for Groupon to keep up with.

Groupon's shares dropped after news broke about the second-quarter slump, dropping its stock down more than 70 percent from where it was back last November when the company went public.

Andrew Mason, Groupon´s chief executive, blamed the second-quarter's faults on Europe's weak economy.

"Weakness in our European markets, which comprised the majority of our international business today, created a significant drag on performance with over $70 million of impact on gross billings quarter-over-quarter," Groupon's CEO Andrew Mason said in an earnings call.

Groupon said its net income was $28.4 million, compared with a year-earlier net loss of $107.4 million.

The profit reported by Groupon was slightly better than what analysts expected, but the revenue number didn't meet their expectations.

Groupon also said revenue in the current quarter would be $580 million to $620 million, which is an increase of 35 to 44% from a year earlier.

Investors are also concerned about the way Groupon records its revenue it gets from its merchandise sales. Groupon records the total amount paid to buyers, instead of just its share of the payments taken through the daily discounts.

Jason Child, Groupon´s chief financial officer, said in the conference call with investors that if the company's share was just accounted for, and not the total from other companies as well, then the second quarter would have been just 30% revenue.

The company faces competition from LivingSocial, Dealster, BuyWithMe and Social Buy. All of these companies offer similar promotions to Groupon, while some even offer vacation packages.

"A sequential decline implies a rapidly deteriorating core business, i.e. the daily deals business, and Groupon needs to act fast to fill up this hole with new initiatives such as Goods," Citi Investment Research analyst Mark Mahaney told Reuters.

Groupon may actually be trying to be proactive in getting customers more involved in its business. Groupon sent an email to a redOrbit employee offering a "48 Hours Only" deal to save $20 off their first Groupon.

The company said that for two days only, "we're giving you $20 off any Groupon."

"Just purchase your favorite deal at on or before August 15 and we'll automatically apply a $20 discount at checkout," Groupon wrote in the email to the redOrbit employee.

It could be moves like these that Groupon makes in order to drum up its revenue, as well as investor interest. Groupon is just one of several online companies that have debuted on the stock market in the last year.

Companies like Facebook and Zynga have disappointed investors since their Initial Public Offerings (IPO), but Groupon at least has a business model that doesn't run on ad revenue alone, but actually has a tangible product.