Groupon sheds quarter of its value


Groupon lost more than a quarter of its value as its shares sank to a record low today, after dismal results drove more investors away from the once-red-hot company and raised questions about its main business.

The daily deals purveyor founded by quirky music graduate Andrew Mason, this year joined fellow recent dotcom debutantes such as Facebook and Zynga in shedding a massive chunk of its market value in past months.

Groupon hit $5.46 in afternoon trading, down 72 per cent from its $20 November IPO price and losing almost $1.3 billion of value today. The total value lost since its IPO is nearly $9.4 billion.

Yesterday, the company blamed a flagging European business for sharply missing second-quarter revenue expectations.

Today's Internet stock selloff extended to Facebook and Yelp, which fell 4 per cent to 6 per cent.

Groupon - first billed by Forbes as the fastest-growing private company in history - began in 2008 by offering huge discounts on local services from spa treatments to restaurant meals to millions of online subscribers.

Its phenomenal growth culminated in a turbulent November IPO, marred by multiple regulatory questions about its accounting, such as booking all revenue from voucher sales even though merchants get a hefty cut of deals.

Mr Mason, a novice CEO prone to bombastic staff memos, initially defended Groupon as a unique corporation, but later gave in to investors' demands for greater balance-sheet transparency.

But the company's stock has headed south since its debut as fears grow about its ability to sustain the growth of its daily deals business.

At least two brokerages today downgraded Groupon and six others cut price targets on the stock, which fell 27 per cent to $5.51 as the most heavily traded stock on the Nasdaq.

Its core business of promoting daily deals has slowed, prompting it to expand into new areas such as consumer product sales and merchant services that have lower margins.

Second-quarter billings, a key metric for online businesses, fell 5 per cent from the first quarter in its first-ever sequential billings decline. Meanwhile, stiff competition from rivals such as LivingSocial, and Google, may be compressing margins, by offering participating merchants higher shares of deal revenue.

Gross margin in the second quarter fell 2.4 per cent from the first quarter, to 76.2 per cent.

Analysts say Groupon's goods business, which sells discounted consumer products, and its other fast-growing new initiatives may not be as profitable as its daily deals.

Sales of goods accounted for 11 per cent of Groupon bookings in the second quarter.

Revenue from Groupon's international business fell 4 per cent in the second quarter from the first. The international business accounted for about 54 per cent of total revenue in the second quarter.