GRPN is getting hammered in after hours trading.
Groupon Forecast Trails Estimates as E-Commerce Transition Drags
By Olga Kharif
Bloo0mberg
Aug 5, 2014 3:10 PM CT
Groupon Inc. (GRPN)’s transition from daily-deal e-mails to e-commerce retail isn’t going smoothly, with investments in the strategy cutting into profits. The shares sank.
The company forecast third-quarter earnings of as much as 2 cents a share, excluding some items, compared with the average analyst estimate of 3 cents a share. That overshadowed second-quarter earnings of 1 cent a share, excluding some items, in line with the 1-cent average estimate. Sales rose 23 percent to $752 million, falling short of the $762 million average estimate.
Chief Executive Officer Eric Lefkofsky has been trying to turn Groupon into a website offering thousands of discounts to boost growth and compete with marketplaces like Amazon.com Inc. To attract consumers and expand sales, Chicago-based Groupon has been expanding its mobile and online features and beefing up its team. Customers have been slow to understand and embrace Groupon’s change of plans.
“I expect the business to continue to show some pretty poor trends that they’ve shown the last few quarters,” Steve Weinstein, an analyst at ITG Investment Research who looks at Groupon’s U.S. business, said before the results were announced. “The growth strategy that they put in place is taking longer than expected. We have not seen any signs that the business has inflected.”
Groupon fell 14 percent to $6.05 in extended trading after the results were released.
Once customers have the option to buy deals on a website, instead of during a limited time typically associated with e-mailed deals, that reduces “the sense of urgency in purchasing,” Arvind Bhatia, an analyst at Sterne, Agee & Leach Inc., wrote in a research note. “This has effectively delayed billings and lowered near-term top-line growth,” he wrote.
What’s more, consumers may not be taking to the company’s websites as quickly as envisioned. Monthly average desktop unique visitors to Groupon’s U.S. websites, as well as its mobile unique visitors, declined in the second quarter, according to Mark Mahaney, an analyst at RBC Capital Markets.
“I do think it’s important they show long-term traffic growth,” Mahaney said in an interview. “The strategy, our guess is, will take a long time to prove out, and it will be a very expensive goal to achieve in terms of marketing dollars and product suite that they have to offer.”
To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net
To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Crayton Harrison, John Lear
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