Groupon Stuck in DOWNWARD Spiral

Groupon (NASDAQ:GRPN) features daily deals on various things to do, see, eat and buy in 48 countries. Shoppers can find great discounts on everything from a weekend getaway in Las Vegas to a Himalayan Ionic Natural Salt Lamp. However, stock in the Chicago-based company is the item being offered at a dramatically reduced price today.

Shares of Groupon (NASDAQ:GRPN) were clipped 26 percent Tuesday after reporting financial results for the second quarter. Net income came in at $28.4 million, compared to a net loss of $107.4 million a year earlier. It was Groupon’s first-ever quarterly profit as a public company, but not enough to dampen slowing growth fears. The company reported that revenue grew 45 percent from last year to $568 million, falling short of the average estimate of $578 million. A new segment called Groupon Goods, which involves the company selling items itself, boosted results due to accounting methods. If Groupon (NASDAQ:GRPN) recognized the item sales in the same manner as the daily deals, revenue growth would have been 30 percent, according to AP. Analysts were expecting revenue growth of 46 percent.

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Revenue compared to the first quarter increased just 2 percent. Meanwhile, second quarter billings, which is the total amount of money Groupon receives before paying merchants, decreased 5 percent. North American growth remained strong, but currency fluctuations and the European financial crisis impacted results. Andrew Mason, co-founder and chief executive officer, explained on the conference call, “Weakness in our European markets, which comprises 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.”

Although Groupon shares were down sharply this past week, it does not necessarily mean they are a good deal. As the chart above shows, the company has been in a downward death spiral since going public last November. Groupon’s initial public offering priced at $20 a share, but has since joined other internet busts such as Facebook (NASDAQ:FB), Zynga (NASDAQ:ZNGA) and Pandora (NYSE:P). On Friday, Groupon shares hit a new record low of $4.51.

The outlook for Groupon is also failing to provide relief for shareholders. For the third quarter, the company expects revenue between $580 million to $620 million. The midpoint was below the $605.5 million expected by analysts. Furthermore, Groupon said income from operations for the quarter would be $45 million to $65 million, below expectations of $70 million to $80 million by Wall Street. “It seems like they don’t have enough control over various aspects of their business,” said Sameet Sinha, an analyst at B. Riley & Co., according to Reuters. “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.”

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