Source: Groupon.
Groupon (GRPN 11.08%) continues to fall out of favor. The former dot-com darling hit yet another all-time low yesterday, and it's probably not a surprise to see the number of naysayers go up as the stock goes down.
There were 84.7 million shares of Groupon sold short as of the end of July. That's the largest short interest on the stock since late last year. The bears are here, and I'm not talking about Mike Ditka.
Groupon is in a bit of a rough patch, to say the least. It posted disappointing quarterly results last week, falling short of Wall Street's top- and bottom-line targets.
Things didn't get any better this week. Deutsche Bank lowered its price target on Monday, going from $8.50 to $6.40. That's a big step down, but Deutsche Bank remains bullish on the leading group-buying website operator. It may as well. If the stock does hit $6.40 it would be a better than 50% pop from today's depressed levels.
It's not the only thing that Deutsche Bank lowered. The firm is also now forecasting a profit of just $0.07 a share next year, down from its earlier projection calling for net income of $0.10 a share. Groupon didn't give it much of a choice. It lowered its EBITDA guidance for this year during last week's earnings report. Expanding deeper in restaurant delivery following its acquisition of Order Up and pushing other offline and real goods businesses should sting margins in the near term.
Selling prepaid vouchers at a discount for local experiences seemed like a healthy model when Groupon went public at $20 four years ago, but hiccups in its international push and buyer fatigue closer to home forced it to reconsider its model. It decided to make the most of its biggest advantage -- a thick dossier of lead-seeking merchants -- broadening its reach into small business services. When that began to grow stale, it turned to its large audience, pushing retail closeouts through Groupon Goods.
We know where the market thinks that Groupon is going. The spike in short interest and a stock chart that looks like a playground slide over the past six months suggest that there's a lack of confidence here. Value investors that have profited from a short squeeze will point out that a low stock price and heavy shorting activity can be catalysts for a rebound, but only if the company proves that a turnaround is in the cards. Groupon obviously isn't doing that by hosing down its guidance last week, leading burned bulls to hope that either Groupon's discounted food delivery platform takes off or that deal seekers flock back to Groupon's bargains. They will probably have to be patient for that to happen.
