Deals

Groupon’s bad year gets worse with earnings miss, tumbling stock price

Groupon

A seemingly good deal gone awry, Groupon today reported quarterly earnings that once again disappointed investors and sent its stock price dropping in after-hours trading.

Thursday, the deals company reported third quarter earnings below expectations. Groupon posted $568.6 million in revenue, up 32 percent year-over-year, and a net loss of $3 million, which amounts to GAAP earnings per share of $0. Groupon closed the quarter with $25.4 million in operating income.

Groupon’s EPS came inline with expectations, but Wall Street was expecting $590 million in revenue, and the miss caused Groupon’s share price to plummet by as much as 17 percent on the after-hours market. The concern seems to be largely focused around Groupon’s international troubles. It said it tallied $665.89 million in gross billings abroad, which was a 12 percent year-over-year decline. Germany, France, and Spain proved to be particularly challenging markets, Groupon said.

“Our solid performance in North America was offset by continued challenges in Europe,” Groupon CEO Andrew Mason said in a statement on the Q3 2012 earnings report, the company’s fourth as a public entity.

Groupon closed the quarter with 39.5 million active customers, showing 37 percent year-over-year growth. Sequentially, though, Groupon only grew its active customer base by 1.5 million people between the end of June and the end of September. Altogether, Groupon now has 200 million subscribers.

Mason kept an optimistic tone and touted Groupon’s side-business-turned-featured-product: Groupon Goods. Groupon Goods is a service that offers members discounted prices on physical goods. The product reached an annual run rate of about $1.5 billion in billings, and almost $500 million in revenues after its first year, the company said.

“Groupon Goods has evolved into a second major category that our customers clearly love,” Mason said. “With deals on everything from designer sunglasses to big-screen televisions to most-wanted toys, we think it will be a great gifting destination this holiday season.”

The deals company did have a few interesting highlights, especially pertaining to its operations in North America. Groupon’s North American revenues grew 81 percent year-over-year thanks to the help of Groupon Goods. In October, Groupon saw roughly one-third of all North American transactions completed on mobile, which is a 30 percent increase from last October. Groupon was also able to cut its customer acquisition costs by 55 percent year-over-year.

On a call with investors and analysts, Mason said that he is “cautiously optimistic” about the company’s fourth quarter performance. Mason stressed that he still believes there is “enormous growth” potential for Groupon’s local emails as the company works to improve quality of its deals blasts (which now include Goods). But Groupon’s real opportunity, he said, will come from its capability to break out of the inbox and create a comprehensive destination e-commerce marketplace, something the company is already experimenting with in Chicago and New York.

Thursday, Groupon closed at $3.92, up more than 4 percent for the day but down dramatically from its $26.90 52-week high. The slight pre-earnings momentum was immediately wiped out as soon as the quarterly report came in. Groupon also today confirmed that it laid off roughly 80 people from its sales team.

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