My Groupon Anxiety
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I spent Friday and Saturday going over the many offers from online deal companies for a two-for-one deal on a restaurant to suit my fancy. I didn’t have to look hard because my e-mail account was filled with offers, including one from Groupon (NASDAQ: GRPN).
While I was going over the myriad deals that Groupon was peddling, such as getaways and even a 15-piece blender set (15 pieces - really?), a friend was perched before his computer studying something even more important– how the Q2 earnings for the once-thought-to-be-best-site for coupon deals would shake out. I don't have any positions on the stock, but I'd like to see him make out well and spend his earnings on a Groupon for me.
All jokes aside, Groupon is set to release its earnings report for its most recent quarter ended June 30 on Monday after the closing bell. This was the main driver behind my friend buying the stock at $7.45 on Friday; a day in which the stock ticked up almost 12%, settling at $7.50, during after hours trading. He, like many investors, is banking on the stock going up after the earnings report release.
It seemed the sky was the limit, just like it seemed for Facebook, when the idea of it going public was first bandied about. Groupon was growing by leaps and bounds, according to the financials it was reporting. For its fourth quarter of 2011, it reported revenues of about $506 million, which was a 194% increase from the $172 million it reported for the fourth quarter of 2010.
It’s been almost a year since Groupon’s initial public offering. It debuted in November at $20, but has dropped more than 60%, partly because of missteps on the company’s part. That includes its seeming inability to count how much money it is making and how much it is spending.
The excitement over its fourth quarter earnings for 2011 was tempered shortly after they were released when Groupon had to restate them to reflect larger losses than it had first reported. For the quarter and full year, it adjusted revenues downward by $14.3 million. The very simple reason: not setting aside enough of the huge revenues it was reaping to cover refunds for customers.
That kind of oversight is very troubling. And let's not forget many market players said Groupon used "fuzzy math" in preparing its financials ahead of its IPO.
Still, the daily deals company managed to eke out respectable revenue growth during the first quarter of this year. At least it hasn’t had to restate them! Revenues increased to $560 million, and that was an increase of 89% compared to the same period in 2011. The amount of Groupons sold, not including taxes and estimated refunds, was up a whopping 103% to $1.35 billion for the quarter.
The online discount provider space has become quite crowded since Groupon shined a bright light on it. The New York Times last year placed the number of similar online couponing sites in the hundreds. These include Facebook, OpenTable (NASDAQ: OPEN), Travelzoo (NASDAQ: TZOO), Yelp (NYSE: YELP) and Amazon (NASDAQ: AMZN). Amazon recently launched Amazon Local.
A look at some of Groupon’s fundamentals compared to its competitions is interesting. Groupon’s profit margin is -2.09%. Yelp also has a negative profit margin of 6.07%. It is 14.52% for OpenTable; 18.45% for Travelzoo; and .05% for Amazon.
My concerns over Groupon largely deal with its earnings per share, which have been negative over the past five quarters. Its TTM EPS is -$.57. It is $1.43 for Travelzoo, $.91 for OpenTable, and $.81 for Amazon.
Groupon’s stock has fluctuated wildly over the past year, raising another concern that its near term performance won’t improve.
While I was enamored by Groupon when it first premiered four years ago, the onslaught of others has curbed its appeal to me. I’m becoming bored with the offers (I don’t want laser surgery!) and I believe the market has had more than a healthy dose of investing in this space. Groupon has its work cut out for it, in attracting customers and investors. Its Q2 earnings, even if they beat estimates, may only be a blip on the screen.
TwillyD has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and has the following options: short OCT 2012 $40.00 calls on OpenTable and long OCT 2012 $40.00 puts on OpenTable. Motley Fool newsletter services recommend Amazon.com, OpenTable, and Travelzoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.