Being a Groupon (GRPN 5.75%) shareholder these days is a lot like being a hardwood retailer dealing with a fussy customer -- in either scenario you're having a hard time finding a floor. Shares of the daily-deals specialist hit another all-time low on Tuesday, closing near the intraday bottom of $1.17.
Stocks in general have been rattled, but Groupon had a February to forget. Groupon shares were cut by more than half last month, after the company posted horrendous financial results. The board's approval of a reverse stock split after the grim quarterly update shattered any semblance of corporate confidence. Groupon stock keeps falling, and it's now another rough trading day or two away from buckling below the dollar mark.
Image source: Groupon.
Grate expectations
One would think this would be the ideal operating climate for Groupon. Discounted goods and experiences sound good in both buoyant and iffy times, and folks hesitant to shop in the real world given the coronavirus scare can appreciate the popular app and website.
Reality, however, hasn't been kind. Revenue plunged 23% in Groupon's holiday-containing fourth quarter, a much larger decline than analysts were modeling. The top line has now moved lower for 16 consecutive quarters, but this was the largest year-over-year percentage slide in that bleak four-year streak.
Some of the slowdown has been by design as Groupon pivots away from its low-margin goods business, but don't lay too much of the blame on the scapegoat. Despite emphasizing its higher-margin flagship business of discounting local experiences, Groupon's profit for the fourth quarter was less than half of the earnings analysts were targeting.
Doubling down on its original model may make sense in theory, but it doesn't feel too bright at a time when the travel industry is taking a hit. Groupon's primary fare may be considered local experiences, but these vouchers are often purchased by tourists looking for discounts on tours and area hot spots. Groupon is a low-key travel stock.
It won't be easy for Groupon to bounce back at this point, and things will get that much harder if it finally does go through with its proposed split. History isn't usually kind to the reeling companies resorting to reverse stock splits. The good news is that Groupon remains flush with cash, giving it time to get the balance right. But a low stock price should be more scary than exciting for individual investors, and institutions are naturally steering clear of this sinking stone.
Groupon may have a good claim to succeed as a consumer discretionary stock, given its niche dominance, but until it can turn its revenue declines around, the shares will probably keep heading lower.
