Groupon Inc.’s stock suffered its worst day in 18 months Wednesday, after the online-discount company posted mixed results for its third quarter.
The company reported adjusted earnings per share of 4 cents, a penny above the FactSet consensus expectation, but its revenue of $593 million fell short of the $602 million analysts were projecting.
Groupon GRPN, -10.58% shares were up as much as 8% earlier Wednesday, but they slid during the company’s earnings call to close down 10.6%. That marks the worst single-day slide for shares since it tumbled 13.3% May 3, 2017.
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D.A. Davidson analyst Tom Forte said that there were low expectations for Groupon heading into the report, prompting an initial relief rally after the numbers hit. But he sees a number of reasons why the stock came under pressure shortly afterward, including a change to the earnings-call format that focused it less on prepared remarks and allowed for a frank discussion of traffic-related challenges facing the business.
Forte explained that Groupon faces a “challenging transition” given that its inbox-oriented legacy business has a better margin profile than the company’s mobile business. Still, the company remains committed to generating interest in its discounts in new ways as the legacy business slows, even if these methods have lower margins.
One newer initiative emphasizes a shift away from coupons and vouchers via the company’s new card-linked products. Whereas users traditionally would print out a Groupon voucher and present it to a restaurant if they wished to receive a discounted meal, newer card-linked Groupon+ offers allow people to register their credit cards in Groupon’s system and get automatic discounts by using those cards at establishments where they’ve unlocked Groupon deals.
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Groupon started its card-linked efforts with free deals, and the company has recently expanded to paid offerings, through which users can pay a fee to unlock a card-linked offer and then receive a deeper discount once they use it.
“Adoption rates are fast and they’re high and they speak to broader opportunities for us to use card-linked products to remove vouchers from the experience over time,” Chief Executive Rich Williams told MarketWatch. He said that the new paid offers have proven “a great driver of customer acquisition” to businesses.
Forte, who rates Groupon’s stock a buy with an $8 target, is upbeat about the Groupon+ program.
“It’s an example of a material improvement that they made to Groupon that makes it so much easier for the customer to use,” he told MarketWatch.
Groupon shares have fallen 46% over the past 12 months, while the S&P 500 SPX, +2.12% has gained 8.6%.
