Shares of Groupon
How it got here
Groupon's latest earnings were the catalyst for a steep drop in mid-August, making it by far the worst performer in a basket of formerly hot IPOs:
Over the past year, however, none of these stocks has remained undamaged. Some have fallen more than others, but the trend is unmistakable:
Groupon's been a consistent disappointment despite strong revenue growth. It's that pesky bottom line causing all the problems. Pandora
Speaking of which, maybe we can drill down into a few of each company's key numbers, to figure out whether they really do have staying power over the long term or they've already got a foot in the grave.
What you need to know
Many of these companies have negative P/E ratios, so let's look at something a bit less susceptible to accounting gimmickry by comparing each on a price-to-free-cash-flow basis:
Price to Free Cash Flow
Current Market Cap
Projected Growth Rate (2013)
Stock Price Change Since IPO
Sources: Yahoo! Finance and YCharts. NM = not material due to negative FCF.
Groupon is surprisingly cheap on this measure, especially against Facebook's inflated total and the negative free cash flow levels at Pandora and Yelp. Despite widespread pessimism, Groupon still sports a triple-digit forward growth rate, far higher than Zynga's or Facebook's. At this point, the few bullish Groupon holdouts qualify as extreme contrarians, as there's been a veritable stampede for the exits among the company's larger investors.
Many bullish cases seem to expect a successful pivot away from Groupon's daily-deals model to something more sustainable. That's a nice dream, but the fact is that few companies successfully transition from one billion-dollar business model to another in the midst of extreme competition. You can probably name a few companies that have, but it's not a particularly long list. You could make the argument that all of these companies are being urged to pivot in a major way, and thus far the market doesn't think any of them can do so successfully.
The Motley Fool's CAPS community has given Groupon a one-star rating, with 85% of our CAPS players expecting the company to fall even further. That's one of the highest bearish ratios on all of CAPS, and it bodes poorly for market sentiment pulling this stock out of the gutter anytime soon.
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