After further review, Groupon's
What "they" are saying
Market watchers name two primary culprits for the daily decline in Groupon's share price. No. 1 is Groupon's first-ever drop in gross billings growth quarter-over-quarter. Gross billings are derived from what Groupon charges its merchant customers. What they don't include are Groupon Goods sales, or what management refers to as direct revenue. When direct-to-consumer sales are included in Q2 results, total revenue rose. Granted, the increase of 1.6% compared to Q1 of 2012 isn't earth-shattering, but a 45% improvement over last year is hardly bearish.
No. 2 (and my personal favorite) is what some analysts refer to as "online fatigue," or competition. Really? Where have these people been the past year? A concern with Groupon, and why I wasn't on board at post-IPO levels of $31 a share, has always been the minimal barriers to entry. In other words, diving into the online coupon marketplace isn't difficult. Never has been.
With large existing customer bases, they will make a big splash in online coupons, and they're not alone. Online coupon alternatives are sprouting up all over, but should come as no surprise to analysts or anyone else.
What needs to be said
If Groupon Q2 financial results were compared year-over-year, as is the case with many companies, the Aug. 13 earnings call would have been cause for celebration. Operating income, earnings, revenues, and customer growth all improved dramatically versus 2011.
Both the international and domestic segments continued to grow compared to last year, with the biggest percentage gain coming overseas. International growth is a double-edged sword for Groupon, though. On the one hand, the European economic situation is a cause for concern, as you'd expect, on a quarter-to-quarter basis, anyway.
But let's not forget the $75.1 million negative impact that exchange rates had on international revenues compared to Q2 2011. This little tidbit is overlooked by Groupon naysayers, but played a significant role in the "disappointing" results outside the U.S. The nearly $1.2 billion in ready cash on the balance sheet is (yet) another factoid Groupon bears seem to overlook.
Contrarians take a stand
I saw a headline recently that read, "Groupon Slide Continues as Some Stakeholders Cut Stakes." And it's true, big hitters including Marc Andreessen and Fidelity trimmed their Groupon holdings last quarter. If you stop there, it's easy to see why shareholders are abandoning Groupon shares. But there are a couple of major players with a contrarian side, too. T. Rowe Price and Morgan Stanley added more than 30 million Groupon shares between them.
Groupon options traders are also moving into contrarian territory. While it's true short interest in Groupon remains high, call option activity this past week has been through the roof, more than double the norm. Options buyers are betting on Groupon's share price finding support in the low-$4 range, and hope to profit with a year-end resurgence. T. Rowe Price and Morgan Stanley aren't the only investors betting on Groupon.
The moves of fund managers and options traders shouldn't drive investment decisions in and of themselves. But if you're a contrarian, or open to the idea of breaking away from the pack, Groupon warrants a good, hard look.
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