Published February 21, 2014
Shares of Groupon (GRPN) tumbled 13% Friday morning as the daily deals leader’s below-consensus guidance spooked investors and overshadowed a solid earnings beat.
While Groupon reported fourth-quarter earnings and revenue that trumped estimates, the company warned acquisition costs will lead to worse-than-expected earnings during the first quarter.
Declaring Groupon is “not a good deal,” Royal Bank of Canada’s (RY) RBC Capital Markets downgraded the stock to “underperform” from “sector perform.” The firm also slashed its price target to $7 from $11.
RBC analyst Mark Mahaney cited the disappointing outlook, weaker-than-expected North American and international billings and the company’s “excessively ambitious” goal of becoming the “starting point for (all) mobile commerce.”
“We may be overly pessimistic on the company’s ability to succeed in this transition -- but we also believe that even if it does succeed, the required duration of this transition makes buying GRPN shares now a risky deal,” Mahaney wrote in a note to clients on Friday.
Mahaney also noted that the goods and travel markets that Groupon is targeting are “extremely competitive with well-entrenched competitors” such as Amazon.com (AMZN), eBay (EBAY), Priceline.com (PCLN) and Expedia (EXPE).
Analysts at Evercore (EVR) trimmed their price target to $8 from $10 and maintained an “equal weight” rating. Deutsche Bank (DB) kept its “buy” rating on Groupon, but lowered its price target to $12 from $16.
Shares of Chicago-based Groupon tumbled 13.12% to $8.93 in premarket trading Friday morning, putting them on track to extend their 2014 slump of 12.7%. However, Groupon entered the day up more than 77% over the past 12 months.
Reporting after Thursday’s closing bell, the daily deals site logged a non-GAAP profit of 4 cents per share, besting forecasts from analysts for 2 cents.
Revenues also exceeded estimates, jumping 20% to $768.4 million, compared with the Street’s view of $718 million. Gross billings increased 5% globally to $1.6 billion.
However, Groupon’s adjusted earnings before interest, taxes, deprecation and amortization came in at $72 million, missing forecasts for $76.2 million.
The company also said it sees a first-quarter non-GAAP loss of 2 cents to 4 cents on revenue of $710 million to $760 million, compared with the Street's view for a profit of 6 cents on sales of $668.7 million.
Groupon cited the one-time costs tied to the integration of its recent acquisitions, including Ticket Monster owner LivingSocial Korea, which it acquired for $100 million in cash and $163 million in stock in January.
The daily deals company also said last month it completed its $43 million all-cash buyout of online flash fashion retailer Ideeli.