What happened
Shares of Groupon (GRPN -9.62%), which bills itself as an experiences marketplace, fell over 9% at the open of trading on March 1. The big news driving the decline was the company's fourth-quarter 2021 earnings release, which hit the market after the close on Feb. 28. There was both good and bad in the quarterly update.
So what
Groupon reported revenue of $223.2 million in the fourth quarter of 2021, down a huge 35% from the same quarter of 2020. However, that number isn't necessarily helpful because management has changed the company's business model. It is no longer selling physical items through its online service, which boosted revenue and costs on the company's income statement. It is now selling coupons for food and other services. The top line drop was, basically, part of the plan and comes with lower costs, with cost of revenue falling a huge 83% year over year. This is a big shift and muddies the waters when you try to look at what's actually going on at the company. On a positive note, the company's business of connecting local retailers to local customers (via the coupons it sells) grew 26%.
Image source: Getty Images.
On the bottom line, Groupon reported adjusted earnings per share of $0.18, down from $0.51 in the prior year. That's not so great, but likely a reflection of the ongoing business overhaul. The company's adjusted earnings, however, actually beat Wall Street consensus, which was for a profit of $0.10 per share. Normally investors would approve of a beat like that and bid a stock up. But that clearly didn't happen in early trading, given that there's a lot to digest here, including parsing the comments of management.
On that latter point, there was some worrying information. Specifically, management noted that in 2022 it's going to focus on "determining the most important role that Groupon needs to play for merchant partners" and "becoming a better partner to our merchants partners by building merchant trust and a better understanding of merchant economics." Those seem like things it should have figured out by now, given it has been selling coupons for over a decade. It's understandable if investors were, perhaps, a little put off by that update.
Now what
Groupon is in the middle of a strategic transition and the waters are still a little muddy. While it has made clear where it wants to head in the future, management's comments are less than inspiring as they suggest the company is still trying to figure out a business model that works. This is not a great option for risk-averse investors, as it looks more like a turnaround play than anything else right now.
