Why Groupon Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of "daily deal" specialist Groupon (Nasdaq: GRPN  ) plummeted 24% today after its quarterly results and outlook missed Wall Street expectations.

So what: Groupon's second-quarter profit managed to squeak past estimates, but a miss on the top line -- revenue of $568.3 million versus the consensus of $575.3 million -- coupled with downbeat guidance for the current quarter reinforces concerns over a maturing market for daily deals. Management cited weak economic conditions in Europe and unfavorable currency movements for the disappointing outlook, suggesting that the company is struggling to find new regions of growth as daily-deal demand wanes.

Now what: Management now sees third-quarter operating income of $45 million-$65 million on revenue of $580 million-$605.5 million, versus Wall Street's view of $76 million and $605.5 million, respectively. "We want to give ourselves room to make the appropriate investments to really continue to make what is a significant portion of our business to feed," CFO Jason Child reassured analysts in a conference call. "And so we want to give ourselves room with that kind of uncertainty, and we feel like that the forecast that we've put forth kind of accurately reflects that uncertainty and the ability to make those investments." Of course, when you consider the faddish nature of Groupon's business model, worrisome sales trends, and increasingly fierce competition in the space, there's still too much uncertainty for conservative investors to handle.

Interested in more info on Groupon? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On August 14, 2012, at 11:16 AM, Hugo31 wrote:

    The next Q3 from Groupon will be under 500 millions income for the simple reason that Europe and Russia are in vacation (july + August) this mean that the business activity is lower by 35%, at this to be added the fatigue of Daily Deals that is mature now, and have disappointed many, many, many customers and partners, who won't use Groupon again.

    Furthermore that the Daily Deals it's not anymore "the new thing" the media won't give millions of free advertising talking about Groupon everyday (exept maybe to tell about the non-profitability of the DD business)

    Q3 will be under any estimations ...

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