Why Coupons.com Has Crashed 60% Since March

Source: StockMonkeys.com, Flickr.

In March, online coupon company Coupons.com (NYSE: COUP) gave investors in its initial public offering a huge paper gain, with the stock soaring from its offering price of $16 per share to close after its first day at $30. In the ensuing months, though, IPO hype gave way to harsh reality, and shareholders have seen the stock plunge well below the initial IPO price. Given the challenges in competing against rival RetailMeNot (SALE), many investors worry that Coupons.com could eventually suffer the same fate as daily deals pioneer Groupon (GRPN -2.11%), and languish in obscurity.

The idea behind Coupons.com is simple: Rather than relying on Sunday newspaper inserts and mailing circulars as a source of coupons, shoppers can, instead, visit its website and get the coupons they want when they want. Despite the past success of other businesses that have transplanted established practices into the online environment, Coupons.com has to demonstrate that its offerings are more valuable to customers than what they can get elsewhere. Let's take a closer look at Coupons.com to see whether the stock will ever rise again.

Stats on Coupons.com

Source: Yahoo! Finance.

Why Coupons.com hasn't lived up to its promise, so far
As often happens with high-profile IPOs, Coupons.com proved unable to sustain initial investor enthusiasm. At first, investors seemed impressed with the size of the potential market, with 315 billion coupons worth $510 billion printed and distributed, but only 2.8 billion of those coupons actually redeemed, saving customers just $3.5 billion. Indeed, the 41% growth in year-over-year revenue that the company reported in its first-quarter results gave Coupons.com some temporary respite from initial share-price declines.

But as time has passed, shareholders appear to have concluded that figures on the potential of the coupon market reveal more about the inefficiency of the printed coupon industry than about the potential of moving the coupon business into the online world. A downgrade to sell from a major Wall Street analyst in June was also particularly ill-timed.

Part of the problem lies with Coupons.com's business model. Despite its technological focus, Coupons.com's oldest business is surprisingly old tech, requiring shoppers to print out physical paper coupons for later use. In an increasingly mobile-based world, that's a lot to expect from shoppers who are tech-savvy enough to turn to the Internet for savings. Fortunately, Coupons.com has realized this, and started to ramp up coupons that can be saved directly to store loyalty cards, as well as coupon codes for e-commerce sites; but that hasn't made the company profitable yet.

Source: Coupons.com.

In August, Coupons.com plunged nearly 25% in a single day following its second-quarter report, sending its stock below its IPO offering price. Losses came in almost double what investors had expected, and more than doubled its year-earlier loss, despite revenue gains of 32%. Coupons.com wasn't able to overcome the high cost of stock-based compensation that has weighed on the company's results for years. Coming off the heels of similarly poor performance from RetailMeNot and Groupon, investors appeared poised to abandon the sector entirely.

Is Coupons.com down for the count?
For its part, Coupons.com is far from giving up. The company sees the recent acquisitions of performance marketing firm Eckim and online loyalty-card specialist YUB as valuable contributors to its future prosperity. The integration of YUB's platform allows Coupons.com to launch new card-linked offers with top retailers in partnership with major payment-card financial services companies. CEO Steven Boal noted that Eckim will bring more than 60 new top-retailer relationships into the Coupons.com fold, and the recent launch of the company's Retailer iQ platform for digital coupon targeting and analytics has the potential to revolutionize the way the company does business with its retail partners.

Still, Coupons.com's most recent guidance for the full 2014 year will require patience from hard-hit investors. Full-year revenue of $217 million to $223 million would represent 29% to 33% growth from 2013 sales; but even with adjusted operating earnings coming in between $12 million and $17 million, Coupons.com still won't post a GAAP profit until next year at the very earliest.

For now, investors are skeptical about the prospects for Coupons.com to bounce back. Even with solid potential for growth, competition from RetailMeNot and other possible future entrants to the coupon space pose a major threat to the 15-year-old company's prospects. Until Coupons.com can prove its ability to turn a profit, many investors will look elsewhere for growth opportunities.