Groupon Inc: This Beaten-Down Tech Stock Could Be an Opportunity
Why GRPN Stock Deserves a Look
When people talk about tech stock investing, they are often referring to the hot tickers that are shooting through the roof. And this shouldn’t come as a surprise. The tech sector is known for delivering high growth rates, and the fastest-growing companies are always highly sought after.
The tech company I want to talk to you about today, however, is not exactly a high-flying ticker. As a matter of fact, it’s a beaten-down stock that goes by the name of Groupon Inc (NASDAQ:GRPN).
If you’ve been following the e-commerce industry, Groupon should be a familiar name. The company, which has been around since 2008, provides an online marketplace that connects consumers with local businesses.
Like I said, this is a beaten-down stock. In the past 12 months—a period when the U.S. stock market soared past its all-time high—GRPN’s stock price went from $4.35 to $2.51, marking a drop of more than 42%.
Groupon Inc (NASDAQ:GRPN) Stock Chart
Taking a look at Groupon’s stock chart, it’s easy to see that the company’s shares took a serious tumble very recently.
Chart courtesy of StockCharts.com
One of the main reasons behind the latest drop in GRPN stock was the company’s second-quarter financial results, which were reported on July 30.
For the quarter, the company generated $532.6 million of revenue and adjusted net income $0.01 per share. (Source: “Groupon Announces Second Quarter 2019 Results,” Groupon Inc, July 30, 2019.)
Is that good or bad?
Well, because GRPN is a widely followed ticker, it faces a set of expectations from Wall Street every earnings season. This time around, analysts expected the company to earn a profit of $0.02 per share on $565.7 million of revenue.
In other words, Groupon missed both top- and bottom-line expectations. Since Groupon’s second-quarter earnings release, GRPN stock has plunged more than 25%.
Keep in mind that the company’s earnings report was released around the same time that the U.S. stock market had a pullback due to concerns surrounding the U.S.-China trade war. Combining this market pullback with Groupon’s missed expectations, it shouldn’t come as a surprise that the company’s shares entered a sell-off.
It doesn’t help that Groupon Inc’s numbers weren’t even good by their own standards. The company’s second-quarter revenue represented a 14% decline year-over-year. And while part of that decline was due to a strong U.S. dollar, Groupon’s top-line number is still down 12% for the quarter on a currency-neutral basis.
For the bottom line, the company earned an adjusted profit of $0.02 per share in the second quarter of 2018. So its latest adjusted earnings of $0.01 per share was a quite sizable drop.
Still, that doesn’t mean investors should just cross GRPN stock off their watchlist.
For one, the company is adjusting well to the trend of consumers moving from desktop computers to mobile devices. Groupon’s mobile app had five million downloads in the past quarter and more than 22 million downloads in the past year. According to the company’s latest investor presentation, approximately 75% of all Groupon transactions were conducted on mobile devices in the second quarter of 2019. (Source: “2Q19 Earnings July 2019,” Groupon Inc, last accessed August 12, 2019.)
Moreover, Groupon remains a go-to choice for many bargain-hunting consumers. It is estimated that one in five Internet users in the U.S. visits Groupon’s platform every month.
And now the company is pursuing a new strategy to further boost user engagement.
On August 6, Groupon announced the launch of “Groupon Select,” a new membership program that costs $4.99 per month. (Source: “Groupon Launches Groupon Select–New Membership Program Providing Access to Exclusive Savings and Insider Perks,” Groupon Inc, August 6, 2019.)
The program offers members additional deals across the platform, such as an extra 25% off local deals and an additional 10% off events and tickets. The company is launching the program in the U.S. and has plans to expand internationally.
“Groupon Select is the best way to experience Groupon today and discover even more value on local services, experiences and goods,” said Chief Executive Officer Rich Williams. “It accelerates the savings we’re known for and makes Groupon an even bigger part of members’ daily routines.” (Source: Ibid.)
At the end of the day, don’t forget that, despite being an out-of-favor stock, Groupon Inc remains one of the more established players in e-commerce, especially in the online-to-offline business. The company has more than 45 million customers worldwide and its app had received more than 200 million downloads.
As it stands, it’s hard to say when sentiment will change toward this beaten-down tech stock. But if the company manages to get back on a growth track with its new membership strategy, I wouldn’t be surprised to see GRPN stock making a turnaround.