Update: Groupon Deteriorates Further

Aug. 5.14 | About: Groupon, Inc. (GRPN)

Summary

Groupon reported disappointing quarterly results, as its declining revenue is a clear red flag.

Groupon's lackluster quarterly report has strengthened my conviction that it will fail to justify its lofty trading level.

In my previous article, I discussed the numerous reasons GRPN will falter.

Groupon (NASDAQ:GRPN) announced earnings after hours on Tuesday and shares tumbled, as it reported disappointing results. Analysts were expecting $0.01 per share on $761.8 million of revenue. Although Groupon delivered with $0.01 per share, its revenue was light, reporting only $751.6 million. Moreover, the sell-off was fueled with tepid guidance given by management. Analysts previously were expecting Q3 EPS of $0.03 on revenue of $760.6 million, however, management has guided for EPS of $0.00 - $0.02 and revenue between $720 million and $770 million.

Revenue for the quarter increased 23% y/y, however, it actually decreased from last quarter. Expenses rose during the quarter and despite the 23% y/y revenue increase, gross profit only rose by $5.2 million or 1.36% y/y. Furthermore, active customer growth has stagnated greatly. Although it increased 25% y/y, it only added 1.4 million customers or 2.7% during the quarter. The momentum in GRPN is clearly fleeting with a slew of competitors putting pressure on margins and staunching growth. Without any competitive advantage this trend will continue.

In my previous article, "Groupon Has An Unsustainable Business Model," I opined that rising expenses with decelerating revenue growth would prevent GRPN from justifying its lofty valuation. With a market capitalization of nearly $5 billion, quarterly revenue in the mid-$700 million range and declining, and an EPS just about break-even, Groupon faces a tough future ahead and will likely fall even further from current levels.

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