Why RetailMeNot Inc. Fell On Friday

By Anders BylundFool.com

Source: RetailMeNot.

What: Shares of RetailMeNot fell as much as 13.8% in Friday's trading session. The digital coupon-clipping service's stock is trading just a few percent above all-time lows, as one of the company's largest shareholders decided to cash in its RetailMeNot chips.

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So what: Venture capital firm Austin Ventures was among the first investors in line when RetailMeNot came looking for start-up capital way back in 2009. That $28.5 million funding round and another $30 million in 2010 became the basis for a 14.6% stake in the coupon service. That holding is worth about $70 million now, following the share price drop that followed a large shareholder cashing out on the company.

Now what: I can't blame Austin Ventures for dropping its interest in this volatile stock, which traded at more than double today's prices as recently as June. The company has missed as many earnings estimates as it beat over the last two years, and I'm skeptical of the online coupon industry in general.

Both RetailMeNot and far larger rival Groupon have seen their earnings and sales stalling in recent quarters. Balancing the consumer appeal that comes from generous coupon discounts with the need to give the participating retail partners a fair shot at making money doesn't leave much room for the middle-men to profit.

Now, Austin Ventures isn't exactly throwing down its shares and walking away in disgust. This move is part of a larger strategy to shift out of early stage growth investments. And RetailMeNot's management cheerfully announced plans to buy back plenty of shares at these low prices. Maybe both Groupon and RetailMeNot will find a way to widen their razor-thin profit margins over time.

But until then, Austin Ventures will look clever for stepping away from the digital coupons table. If nothing else, the meager 19% return on the firm's original investment over more than five years only underscores how frustrating this specialized sector can be.

The article Why RetailMeNot Inc. Fell On Friday originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends RetailMeNot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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