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Why Groupon Stock Plunged Today

By Evan Niu, CFA – Updated Sep 14, 2020 at 6:01PM

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The e-commerce company provided investors with an update to its business model transition.

What happened

Shares of Groupon (GRPN -2.94%) have plunged today, down by 11% as of 12:05 p.m. EDT, after the company released a presentation last Friday to give investors an update on its transition to a new model in North America. Groupon had previously announced the move when it reported second-quarter results last month.

So what

In early August, Groupon said it would be transitioning its North American business from selling products directly to a third-party marketplace model. The e-commerce tech company has already exited its warehouse operations, which will significantly reduce its cost structure, interim CEO Aaron Cooper had said.

Wall with Groupon stenciled on in very large letters

Image source: Groupon.

The update on Friday clarified that the change would impact how Groupon reports its financial results. Revenue will be recognized on a net basis instead of a gross basis going forward, but gross profit dollars will be unchanged. The transition will increase the company's reported gross margin percentage but decrease revenue take rate.

Now what

As a result of the changes, Groupon expects consolidated goods revenue in the third quarter to be approximately $155 million. The consensus estimate currently calls for $187 million in goods revenue.

Groupon says it is making "good progress" with the transition and it should be "largely complete" by the end of Q3. Cooper had noted that the company will then begin to transition its international goods business to the same third-party marketplace model starting in the fourth quarter.

Editor's note: A previous version of this article incorrectly characterized the consensus estimate.

Evan Niu, CFA 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.

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