RetailMeNot (NASDAQ:SALE) has been a nightmare for investors. The stock has shed more than two-thirds of its value over the past two years, and that includes a brutal 41% plunge earlier this month the day it posted horrendous quarterly results.
The stock bounced back -- up nearly 9% last week -- but the fundamentals continue to look dicey for the company that helps consumers find cheaper ways to buy stuff. Let's go over the major obstacles that RetailMeNot will have to overcome to get its stock back into the good graces of Mr. Market.
1. Growth in mobile and in-store purchases aren't enough
RetailMeNot kicked off its earnings release in encouraging fashion. The first two bullet points bragged about year-over-year net revenue spikes of 91% in mobile online transactions and 72% for in-store marketing. You would have to go a few lines deeper into the release to learn that total revenue actually declines 11% for the quarter.
The problem at RetailMeNot is that its flagship desktop-based online business saw its revenue slide 25% since the prior year. That's important, because this still accounts for 73% of the revenue mix at RetailMeNot. It will take time before the smaller endeavors move the needle.
2. RetailMeNot is milking less money out of its users
Declining revenue on the PC side isn't a surprise. Most Internet companies are trying to navigate today's marketplace where folks on desktops and laptops migrate to smaller smartphones. Serving up ads and generating leads is a model that's harder to monetize on mobile.
Making matters worse, RetailMeNot also suffered last year from search engine tweaks that initially resulted in a dip in organic traffic.
However, one metric nugget that should have caused more bellyaching than it did is that desktop visits -- and this category also includes tablets, by the way -- fell by just 16% since the prior year. If visits fall by 16% and related revenue is off by 25%, that's a red flag. RetailMeNot is not generating as much revenue per visitor as it did in its prime.
3. Wall Street missed the boat on seasonality
The biggest stinker in the report was its guidance. After back-to-back quarters of sequential declines in revenue, analysts were holding out for sequential improvement during the third quarter. RetailMeNot's outlook suggests yet another sequential decline is in the cards for this quarter. That surprised the market, but it shouldn't have come as a shock to anyone that saw sequential revenue decline in all three quarters last year following the peak holiday period. It's the nature of the business.
The real dagger in the guidance is that just three months ago RetailMeNot was holding out for overall top-line growth for all of 2015. It tweaked its guidance earlier this month to reflect an 11% slide. That's where things get ugly. That's where the 11% year-over-year decline it experienced during the second quarter gets blown out to a full year, leading investors to rightfully question if the reinvention process can make this company a growth stock darling again. Until RetailMeNot proves the naysayers wrong, the fits will continue.