Groupon slumps on weak Europe, slowing daily deals business
Tue Aug 14, 2012 8:43am EDT
(Reuters) - Shares of Groupon Inc (GRPN.O) looked set to open down 20 percent on Tuesday, after the company's quarterly revenue missed Wall Street estimates on a weak European economy and its high-margin daily deal business slowed.At least two brokerages downgraded the company's stock and four others cut their price targets.
Groupon is one among several high-profile Internet companies such as Facebook Inc (FB.O) and Zynga Inc (ZNGA.O) that has continued to disappoint investors after raising expectations during their market debuts.
Groupon's original high-margin business, which promotes to its members heavily discounted daily deals on behalf of retailers, is showing signs of slowing. This has pushed the company to expand into new areas such as consumer product sales and merchant services, which have much lower margins.
The company's second-quarter billings, a key metric for companies doing business online, fell 5 percent from the first quarter. This is its first-ever sequential billings decline.
"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 said.But analysts say that though Groupon's Goods business, which sells discounted consumer products, and other new initiatives are growing quickly, they may not be as profitable as its daily deals business.
Revenue from Groupon's international business fell 4 percent in the second quarter from the first. The international business accounted for about 54 percent of total revenue in the second quarter.
Europe has a larger mix of high price offers, compared with North America, which are more prone to macroeconomic problems, JP Morgan analyst Doug Ammuth wrote in a note.
Citi's Mahaney pegs revenue from Europe at 25 percent to 30 percent of total sales.
"While management appears to be taking steps to manage the headwinds in Europe, the headwinds are likely to persist for the time being," RBC Capital Markets analysts said in a note."The continued deceleration in growth keeps us on the sidelines."
Shares of Groupon were down 20 percent at $6.05 in premarket trading on Tuesday. They closed at $7.55 on the Nasdaq on Monday.
The stock has lost three-quarters of its value since it touched a high of $31.14 on November 4, the day it debuted on the Nasdaq.
(This story corrects paragraph 8 to clarify that international revenue fell 4 percent, and not by a fourth, in the second quarter from first. Also clarifies in the same paragraph that international revenue accounted for 54 percent of total revenue, not 40 percent)
(Reporting by Chandni Doulatramani and Sayantani Ghosh in Bangalore; Editing by Sriraj Kalluvila)
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