Earnings don't matter in this market (surprise, surprise). If they did, many stocks would not be trading at a zillion multiple, as many do today.
The name of the game in this market is revenue growth. If you can show 30%-40% revenue growth year-over-year, then for some reason (that I do not understand), the market rewards your stock handsomely (in fact, you make out like a bandit).
Having said this, Groupon's results yesterday were not bad. They were not bad compared to what the market expected (they were bad by my metrics). The company earned $0.04 per share (if you exclude items), or about two pennies more than what analysts had forecasted. Revenue was also a little better than expected, about 20% higher year-over-year.
However, there were two issues that the market was not particularly happy about. Let's start off with the headline item that many analysts think mattered most, but actually didn't. The company forecasted a loss for Q1 of 2014, when analysts were expecting a profit.
Groupon forecasted an adjusted loss of 2-4 cents per share, when the market was expecting a profit of about $0.06 per share. So that's a very big guidance miss. But like I said in the beginning, the market does not really care about profits. And for a stock that was at around $11 a share, a penny here and a penny there makes little difference. Even if the company guided the market with a $0.06 per share profit, to me Groupon is still a very expensive stock.
What I think the market didn't like most of all was Q1 cost and adjusted EBITDA guidance. The company expects one-time costs related to the integration of its recent acquisitions as it consolidates Ticket Monster with its Korean business. While the expected revenue from these businesses is expected to be about $50 million, there will also be a $20 million negative impact on adjusted EBITDA.
However, this is not the worst of it, if you ask me. See, revenue during Q4 (that surprised to the upside) came in at $768.4 million compared to $638.3 million in Q4 of 2012 (which was good). However, revenue guidance for Q1 of 2014 stands at $710-$760 million.
And if you ask why this important, it's because this number is lower q-o-q than Q4 of 2013. In other words, even with $50 million in additional revenue from the company's recent acquisitions, the company will not show any revenue growth.
And if you want something even worse than this (yes, there is something worse than no revenue growth), Groupon expects adjusted EBITDA for the full year to be slightly above 2013 levels. I mean no revenue growth is one thing, but no adjusted EBITDA growth either? Analyst Sameet Sinha from B. Riley & Co., for example, was looking for EBITDA to grow more than 30% in 2014.
So the question the market is asking itself is this. If anyone is going to pay 6 times sales for any company, the least it can expect from the company is revenue and adjusted EBITDA growth. Because if the company can't grow these two figures at 30%, what would anyone pay 6 times sales for any stock?
The answer is that there is no reason (to pay 6 times), and that's why the stock is tanking and might continue to do so for several dollars more.
On that note, RBC Cap's Mahaney cut Groupon to Underperform, with a $7 share price target and $4 downside target. That might be a little bearish even for me, but if we see a major market correction, don't bet against such an outcome.