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. By mid-morning Groupon’s shares had fallen 25% to an all-time low of $5.60. Its shares are now worth less than a sixth 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.
[Groupon via Annette Shaff / Shutterstock.com]