RetailMeNot Earnings Show Why Online Coupons May Not Be a Great Bet for Investors

The coupon purveyor's stock tumbled after its quarterly report came out last night.

Aug 5, 2014 at 5:10PM

Shares of RetailMeNot (NASDAQ:SALE) fell nearly 29% today after the coupon seller provided disappointing guidance in its second-quarter report.

The company showed off strong growth in its most recent quarter, as sales jumped 37% to $59.5 million, just short of the consensus estimate of $60 million. On the bottom line, net income fell 16% to $4.3 million due to increased investment, but adjusted earnings per share still matched the analyst estimate at $0.17. 

Most important, RetailMeNot's forward guidance was much weaker than expected: The company sees revenue in the current quarter of $53 million-$57 million, below the consensus of $62.6 million. For the full year, the company lowered its forecast from $276 million-$282 million to $262 million-$270 million. Analysts had projected revenue at $282 million for the full year. 

Concerns about RetailMeNot have grown since Google reformulated its algorithm in May, punishing coupon merchants in search results. The stock is now down about 60% since a late February peak at $47, and the dialed-down guidance seems to be further evidence that Google's changes are taking a toll on the company. 

Still, most major indicators of the company's performance are moving in the right direction, as organic revenues for the quarter grew 34%, international sales jumped 57%, and mobile revenue more than doubled to 114%.

CEO Cotter Cunningham played down the impact of Google's algorithm shift on the earnings conference call, saying, "We don't see anything in this [shift] that gives us more pause than previous ones or increases our concern."

Top-line growth has not been a problem for RetailMeNot, but I'd be concerned with the reduced guidance and the fall in profits. Spending on product development nearly doubled in the quarter, and stock-based compensation also increased sharply, though that figure is excluded from non-generally accepted accounting principles calculations. 

In the aftermath of last night's report, RetailMeNot received some analyst downgrades, mostly on concerns about Google's algorithm changes and on its lowered guidance. However, some analysts stood by the company: Jefferies said the negativity was fully priced in, while Credit Suisse expected the company to return to margin expansion by the second half of next year. 

I'd be more skeptical, as Google's recent algorithm update could pave the way for similar refinements in the future. The search leader has made it clear that it sees coupon merchants such as RetailMeNot as "low-quality" search results.  Given that, it may not be much longer until we see another update from Google, again hurting coupon vendors like RetailMeNot. While the stock could be a steal at today's price after the company grew its top line by 37%, I'd like to see profit growth and further evidence that it can sufficiently diversify its Web traffic to compensate for any future adjustments by Google.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Google (A and C shares) and RetailMeNot. The Motley Fool owns shares of Google (A and C shares). 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers