It’s a bad deal today for Groupon, the company that built a business around daily deals for goods and services and has since expanded into areas like commerce solutions for small businesses. The company’s stock opened at $2.81 after dropping more than 30% in pre-market trading, on the heels of a triple-whammy of news: a CEO change; a mixed Q3 report; and weak guidance for the upcoming holiday season. The last is perhaps the most worrisome of all, considering that Q4 is normally such a key period for online and offline retailers.
The news initially led Nasdaq to halt trading in Groupon stock yesterday, when it was last priced at $4.03.
More immediately, new CEO Rich Williams, who is stepping up from COO while co-founder Eric Lefkovsky steps back into the chairman’s role, is hunkering down to try to fix things at the company. According to the company’s earnings call yesterday, his plans include more investment in customer acquisition; cutting more international operations (including possibly layoffs or closing in certain markets); and shifting Shopping away from lower margin to higher-margin products.
Not mentioned in Williams’ remarks is the fate of Breadcrumb, Groupon’s restaurant software business, which has seen some downsizing and was reportedly being considered for sale earlier this year.
Groupon once enjoyed a skyrocket valuation, rebuffed acquisition offers from Google and had a bubbly IPO with shares popping 40% and valuing the company at nearly $18 billion.
More recently, it has seen its core business of daily deals — where users are offered bargain prices on goods or experiences, usually for a limited window of purchasing — hammered. The company’s moves into newer business areas, with ambitions to be the platform for local commerce, has been fuelled by a series of acquisitions, although not all of these have proven to be seamless transitions and are not yet translating into significant customer and sales lifts for the company. The company currently has a market cap of $2.64 billion.
Punctuated by a large round of layoffs, the company had a lacklustre Q3, with flat revenues of $714 million compared to a year ago, at the lower end of its guidance and missing analysts’ estimates. Earnings per share were $0.05, which includd $0.03 of tax benefit and one-time items. Excluding these items, non-GAAP EPS still met guidance at $0.02, Groupon noted.
The company’s gross billings — the total dollar value of customer purchases of goods and services — was $1.47 billion, down from $1.49 billion a year ago. North America accounts for more than half of that at $869 million. Similarly, while active customers were up 4% to 48.6 million as of September 30, the amount they are spending is going down, with the billings per average active customer now at $132 versus $137 a year ago.
Groupon’s revenue guidance for Q4 is to bring in sales of between $815 million and $865 million, on EPS of between -$0.01 and $0.01. That is a far cry from analysts’ estimates of between $900 million and $1 billion in revenues and EPS of $0.05 and $1.12.