Groupon shares whacked after hours following disappointing results

Discount coupon retailer Groupon continued to dismay investors following their 2Q results announcement after the US main session yesterday. The shares traded down to just $6 in the after hours session and does not bode well for the official open later today.

We covered Groupon in our inaugural issue (Click here, page 10 – http://issuu.com/spreadbetmagazine/docs/spreadbet-magazine-edition-1) and suggested they would make interesting trading during 2012. Well, the stock is now down 70% from its flotation price of $20 and some 80% from the crazy post float spike to just over $30 that was engineered through the small free float that was initially in place at the IPO.

Groupon executives said Europe’s weak economy and currency fluctuations dented results. They also said the company is working to improve the company’s performance in that region.

“It seems like they don’t have enough control over various aspects of their business,” said Sameet Sinha, an analyst at B. Riley & Co. “Will they be able to fix the situation by the end of this year? If not, we could see a very significant slowdown in growth in 2013.”

This year, Groupon’s issues have come to epitomize a clutch of Internet and social media companies, such as Zynga and Facebook, which debuted with much fanfare but have since failed to live up to lofty initial expectations.

Groupon grew rapidly as a private company by offering big daily discounts on local services, such as restaurants, to millions of online subscribers.

That original daily deal business is showing signs of slowing, so the company has expanded into new areas, such as consumer product sales and merchant services. Some of these new initiatives are growing quickly, but may not be as profitable as Groupon’s original daily deals.

Are Groupon shares a Buy here? In our opinion no – the stock is still valued at over $4bn. The stock has a negative net book value after stripping out intangibles and with slowing revenue growth and further losses through 2013 it looks like another capital raising is likely. That doesn’t mean that there isn’t a trading opportunity in the stock however, and a look at the chart below shows a 52 wk low of $6.35. If we can catch a reactive swing long trade around $5.60 – 70 we shall open a small position with a view to stripping out around a dollar turn.

Groupon daily chart

Editor