Groupon Inc., the Chicago-based daily deals website, offered up an earnings disappointment Wednesday after the market closed, and its stock price tumbled about 25 percent in after-hours trading.
The company posted a fourth-quarter net loss of $81.1 million, or 12 cents a share, missing consensus analyst estimates, which called for the company to earn 3 cents a share. Revenue for the quarter came in at $638 million, up 30 percent year-over-year and in line with estimates.
Lower margins associated with its Groupon Goods sales and higher marketing costs -- taking a smaller cut from merchants to attract new business -- were cited as factors contributing to the quarterly loss.
Andrew Mason, co-founder and chief executive of Groupon, pointed a finger overseas as the primary cause.
"It was continued volatility in our international business that drove the weaker-than-expected profitability in the quarter," Mason said during the earnings call Wednesday. "We still have much work to do to bring our international operations to the same level of those in North America."
The company lost $67.4 million for the year, or 10 cents a share, on revenue of $2.33 billion. Projections for first-quarter revenue between $560 million and $610 million fell below consensus estimates of $655 million. The disappointing earnings and tepid forecast sent Groupon's share price plunging from nearly $6 down to about $4.40 in after-hours trading.
Launched in 2008, Chicago-based Groupon created its own e-commerce niche with heavily discounted daily deals blasted out to subscribers via email. While targeting has become more sophisticated, growth has slowed and with it, investor enthusiasm.
The company has set out to reinvent itself, introducing search-driven deals stockpiled with ongoing offerings, and continuing to build out its own store, Groupon Goods, which sells everything from orthopedic pet beds to diamond tennis bracelets at a discount. Those initiatives have yet to make much of a dent on the bottom line.
Groupon shares hit an intraday low of $2.60 in November but rebounded after Tiger Global Management, a New York-based hedge fund, acquired a 10 percent stake in the company.
That same month, Groupon rolled out its local marketplace in Chicago and New York, a bank of thousands of ongoing deals that the company called an "evolutionary step" toward demand shopping. Customers who search online for everything from Mexican restaurants to Brazilian waxes will see relevant active deals offered by Groupon, hopefully pulling them to the site to fulfill their purchases.
While still a small part of Groupon's sales, it represents a big shift from its familiar push model, where daily deal emails fill inboxes with hit-or-miss offerings, to a pull dynamic where customers come to its sites in search of a variety of products and services.
Mason said Wednesday that the shift will ultimately pay dividends for Groupon and its investors.
"We just believe that the potential of a local marketplace business, where you can fulfill demand instead of shocking people into buy(ing) something they had no intention to buy when they woke up in the morning ... it's just a much larger business opportunity," Mason said.
Analysts remain mixed about Groupon's prospects to evolve the business model beyond its core daily deals.
Edward Woo, senior research analyst at Ascendiant Capital Markets, has a "sell" rating and a $2.50 price target on the stock. He remains cautious because of slowing growth in the company's daily deals business, and he is not convinced that Groupon Goods, which accounted for $225 million in fourth-quarter revenue, is such a good idea.
"There's only a couple really big, successful e-commerce companies out there, Amazon being the biggest," Woo said Tuesday. "If you were to place your bets, do you really think that Groupon can take on Amazon? Most people would say no."
While not quite bullish, Evercore Partners analyst Ken Sena sees encouraging signs from Groupon's new searchable local marketplace and improving mobile engagement, upgrading the stock two weeks ago from "conviction sell" to "underweight," with a $5 price target, before the earnings report Wednesday.
"There are a couple of things we're encouraged by as we look at the overall story," Sena said Tuesday. "The fact that traction on mobile seems to be really strong, and growth within (their) local marketplace. I think that's an important overall business model evolution as the company moves from a push-based model to a pull-based model."
Arvind Bhatia, senior research analyst at Sterne Agee, recently upgraded Groupon to a "buy" with a $9 price target, citing the local marketplace initiative as a driver for long-term growth.
"Groupon has become synonymous with discounts," Bhatia said Tuesday. "The initial years were all about sending that email and letting you know there's a hot deal and it's going to expire soon. I don't think it's a bad thing to combine the push email with the pull."
In spring 2011, Groupon was said to be worth as much as $25 billion.
Its after-hours market capitalization Wednesday was below $3 billion, putting pressure on Mason to find the right formula to right the pioneering Chicago tech company.
Woo remains skeptical that Groupon can grow its goods and local marketing segments enough to offset the stagnant daily deals business.
"Fundamentally, it's still a struggling business, it's still very competitive," Woo said. "They're still very involved in the daily deals space, which is overall not growing very much."
Woo believes the company will focus on more than just growing new segments of its business going forward. He expects cost-cutting to be a big part of the plan for 2013, which may mean layoffs.
"They're growing certain areas, but other areas they're shrinking," Woo said. "My guess is cost control will still be a pretty high focus for them, so I expect them to keep reducing more people than they hire."
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