Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Groupon Crashed Today

By Timothy Green – Feb 19, 2020 at 2:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A steep revenue decline and a new turnaround plan were not well received by the market.

What happened

Shares of Groupon (GRPN -10.04%) tumbled on Wednesday after the company reported abysmal fourth-quarter results and announced that it would exit the goods category to focus on its local-experience marketplace. The stock was down about 41% at 2:05 p.m. EST.

So what

Groupon reported fourth-quarter revenue of $612.3 million, down 23% year over year and about $92.6 million below the average analyst estimate. Global units sold were down 16% to 42.6 million, driven by fewer customers and lower traffic. In North America, units were down 11% in the local business and down 32% in the goods business.

A declining chart.

Image source: Getty Images.

Non-GAAP (adjusted) earnings per share came in at $0.07, down from $0.10 in the prior-year period and $0.08 below analyst expectations. While revenue plunged, gross profit was down just 15%, and the company managed to slash marketing spending by 25%.

Following a review of strategic alternatives, Groupon has decided the exit the goods business entirely. The focus going forward will be the local-experiences market, which the company pegs at $1 trillion. The market is fragmented, with Groupon having less than 1% market share.

Groupon also announced a reverse stock split, at a ratio between 1-for-10 and 1-for-12. The proposal will be submitted for shareholder approval at the annual meeting in June.

Now what

For 2020, Groupon expects to launch a new mobile app, relaunch its brand, and grow North America local units starting in the second half. By 2022, the company expects high-single-digit percentage unit growth, mid-single-digit percentage revenue growth, and adjusted EBITDA margin in the high teens.

It's not surprising Groupon's plan landed with a thud -- even the North American local-business segment suffered a steep decline in units sold during the quarter. With the small-cap stock plummeting, the market doesn't appear optimistic about a turnaround.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Groupon Stock Quote
Groupon
GRPN
$8.24 (-10.04%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
338%
 
S&P 500 Returns
108%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.