Shares of Groupon (GRPN -10.73%), which provides online coupon-based marketing solutions for retailers, fell sharply at the open of trading on May 10, losing roughly 14% of their value in the first few minutes of the day. The big news was the company’s May 9 first-quarter 2022 earnings release, which hit the street after the close. Investors clearly did not like what they saw.
There are really two stories here. The first is obvious, but it is still important to note. On the top line, Groupon brought in $153 million in revenue from its coupon business in the first quarter of 2022. That was down from $173 million in the same quarter of 2021. Not only were revenues down year over year, but they also missed analyst expectations. That’s not a great showing, given that the economy has been performing pretty well, though management noted that business was likely muted because retailers didn’t need to offer discounts to attract customers. That makes sense but suggests Groupon’s business is likely to perform poorly when economic conditions are good — not a huge selling point for the stock. On the bottom line, Groupon posted an adjusted loss of $0.80 per share in the quarter, down from an adjusted profit of $0.25 per share in the year-ago period. Wall Street was expecting an adjusted loss of around $0.46 per share. In other words, Groupon missed on the top and bottom lines, which investors usually view unkindly.
The bad news, however, doesn’t stop there. New CEO Kedar Deshpande (he’s only been around since December of 2021) stated in the earnings release that “I’ve spent the majority of my time building an understanding of why we have not been able to successfully translate the significant assets we have — scale, data and customers –into a sustainable growth engine.” That’s an honest commentary, but certainly not a positive one. He believes that cutting costs and expanding the breadth of Groupon’s offerings is the solution to the problem. But that sounds like a long-term task, and investors are currently thinking short term, thanks to market turbulence. So there’s an extra negative here, as investors appear to be taking a “show me” approach with the shares.
Groupon is probably best viewed as a turnaround story right now. That should lead most conservative investors to avoid the stock. And given the uncertainty in the market, a glass-half-empty view of the company might be the right one to take for now. That said, a recession could actually increase demand for its services, but it’s far from clear that an economic downturn is enough to get Groupon back on track over the long term.