Photo: Yahoo Finance
The Groupon disaster keeps getting worse.
After reporting disappointing earnings and a disappointing outlook, the stock has crashed nearly 25% to a new all-time low of ~$5.80.
That’s 70% below last winter’s IPO price of $20. And it’s 80% below the opening-day high of about $30.
The market’s expectations for the company at the IPO were silly, but the magnitude and speed of the subsequent collapse has still been startling. Especially considering that Groupon is now doing what many sceptics said it could never do, which is making money.
At $5.80, Groupon has a market capitalisation of about $3.75 billion.
Netting out the company’s current payables, it has “net cash” of about $600 million.
So that means the business itself is valued at about $3 billion, or about 1.5X run-rate revenue.
That’s a low valuation for a profitable company that is still growing.
So, is Groupon a buy here?
Maybe, but several aspects of the results fuelled concerns that Groupon still hasn’t found a “floor.”
These concerns include:
- The core business–selling coupons–is now shrinking.
- Gross billings–the total value of all the stuff and coupons Groupon sells–is now shrinking, at least before adjusting for foreign exchange rates
- The company’s now modest growth is coming from a new business, selling stuff, which has less attractive cash-flow characteristics and lower margins
- Groupon’s effort to become profitable has led to drastic cuts in marketing costs, and these are hurting the company’s growth. This transition–from hyper-growth to steady growth with profitability–likely has a ways to go.
- The company’s management team and board continues to turn over, with early backers like Howard Schultz leaving
- The future viability and attractiveness of the company’s core business, coupon sales, is now in doubt. Until Groupon demonstrates that merchants and customers love its service and will keep buying even with no marketing, this will remain a question.
Put all that together, and investors are justifiably wondering whether Groupon will ever achieve a state of steady, profitable growth.
(For what it’s worth, I still think it will. But there will likely be several more quarters of pain before we get there.)
SEE ALSO: Here’s Why Groupon’s Stock Just Tanked