Mr. Market can be finicky. Shares of Groupon (GRPN 24.93%) plunged 19.1% last week despite the company's posting better-than-expected quarterly results and striking a deal to snap up its closest rival.
It was a flat showing for the daily-deals leader in its third quarter. Revenue was $720.5 million for the period, 1% higher than a year earlier. It was also just ahead of the $710.5 million that analysts were forecasting. However, gross billings of $1.43 billion clocked in 2% lower than the prior year. This isn't as bad as it may seem: Groupon's been retreating out of some tricky international markets, and gross billings on its home turf of North America climbed 6%.
Groupon checked in with an adjusted net loss of $0.01 a share. Red ink isn't applause-worthy, but the deficit is half of the quarterly loss that analysts were expecting. In an odd coincidence, but also a testament to Groupon's ability to land just ahead of where Wall Street pros are perched, this is the third quarter in a row that it posted an adjusted deficit of $0.01 a share when the market was holding out for a loss of $0.02 a share.
Landing ahead of analyst projections on both ends of the income statement is usually a good thing, and bumping its annual forecast slightly higher for all of 2016 should've been the cherry on top. Unfortunately it was a sour sundae, and some are blaming the slide on Groupon's announced acquisition of LivingSocial.
Groupon and LivingSocial were the two dominant players in the once-booming flash-sales space. The niche has fallen on hard times, as local businesses now do a better job of drumming up leads through social-networking sites. It also hasn't helped that local businesses have cooled on the novelty of offering deeply discounted introductory experiences for pennies on the dollar.
This may make snapping up LivingSocial an odd transaction, but Groupon is picking it up at a pittance. Terms of the deal weren't announced, but they likely aren't much. Groupon expects the deal to add a million customers and $60 million in annual revenue to its rolls. It's a smart deal, and certainly not the kind of transaction that would wipe $550 million in value off of Groupon's market cap.
The bigger culprit for Groupon's slide is likely the "priced for perfection" syndrome. Groupon's stock has nearly doubled since bottoming out at $2.15 in February, even after last week's 19% plunge. Tack on the fact that Groupon's revised guidance will now include a month and change of LivingSocial -- accounting for all of the hike -- and it would've probably taken more than a modest beat to keep the levitation going. The sell-off still seems overdone for the company, which continues to do the best that it can in this challenging climate.