Two of this year's biggest dot-com laggards bounced back in a major way last week. RetailMeNot (SALE +0.00%) and Coupons.com (NYSE: COUP) soared 17% and 15%, respectively, on the week.
These are big moves, but it's not as if shareholders of either company are doing a lot of celebrating this year. Both stocks have shed more than half of their value since their springtime peaks.
Searching for catalysts for the rise of the two digital coupon specialists won't be as productive as you may expect given the double-digit gains. Coupons.com benefited from being called a breakout candidate in TheStreet.com, while it was a Seeking Alpha piece that improved RetailMeNot's prospects by pointing out how its organic search traffic appears to be improving with a recent Google (GOOG 2.59%) algorithm change.
Ranking high in search results without having to pay Google for marketing is a pretty big deal for these sites, which rely on deal seekers punching in things like "Anthropologie code" and "Pizza Hut coupon" into search query boxes to generate leads. RetailMeNot's stock took a big hit in May after Google's Panda 4.0 update resulted in a decrease in organic visitors.
Marking down the markdown enablers
Bulls will argue that the sell-offs aren't warranted. RetailMeNot went public last summer at $21, and it has gone on to beat Wall Street's quarterly profit targets by a double-digit percentage margin every time out. Coupons.com went public earlier this year at $16, and it has gone on to exceed bottom-line expectations in its first two quarters on the market.
The market was initially high on the two companies, which provide coupons for in-store purchases as well as aggregating promotional codes that can be used online. Concerns about the models, organic growth, and valuations then began to eat into that early enthusiasm.
Overall growth is still there. Analysts see RetailMeNot posting a 27% uptick in revenue, followed by a 20% move higher in 2015. The market was holding out for headier growth this year before the Google search debacle, but it's hard to complain with that kind of growth. Coupons.com is growing even faster. Wall Street pros see revenue growth clocking in at a 32% clip for both this year and next year.
Bottom-line results haven't been as cooperative. RetailMeNot's profit growth took a breather during the second quarter, with net income sliding 16% over the prior year. Analysts see another period of year-over-year declines in profitability when RetailMeNot reports third quarter results in two weeks. Coupons.com is faring even worse. It has yet to turn an annual profit. However, it did surprise Wall Street by posting a small profit through the first half of this year. Analysts see a small deficit when it reports quarterly financials a day after RetailMeNot. However, Wall Street sees Coupons.com breaking even for the first time this year before building on that in 2015. Analysts see bottom-line growth making a comeback at RetailMeNot starting in the current quarter.
Making the most of a bargain
The sharp corrections heading into last week's pop could be the best thing that happened to either company in the eyes of opportunistic investors. After all, everything from the network effect that benefits larger coupon aggregators to the larger smartphones making it easier to go shopping online bode well for the futures of both companies.
RetailMeNot is now reasonably priced at just 15 times next year's projected profitability. Coupons.com trades at a much loftier multiple, but it's just starting to turn the corner of profitability. Everybody loves a good deal, and this time it was the deal providers getting marked down. If the fundamentals continue to improve, the compelling pricing deals on both stocks are unlikely to last.
