Groupon struggles to contain its fail as shares tank

Shares plunge 26% after a surprise loss

Another quarter, another Groupon fail. Groupon announced its fourth quarter and full year earnings Wednesday evening, and shares tanked—as usual. It's like their schtick now. The daily deals company’s stock plummeted 26% in early morning trading Thursday, after Groupon revealed a larger loss and disappointing revenue.

The good news is that gross billings were up 23.5% to $1.52 billion in Q4 from $1.23 billion in Q4 2011. Street consensus pegged gross billings at $1.33 billion, however, so Groupon made some headway there. The bad news is that 23.5% growth in gross billings did not translate into higher-than-expected revenue. Groupon came in with $638 million in revenue for Q4, which is 29.7% higher than the year-ago quarter, but it came in just a hair short of the $640 million the Street was expecting.

The bad, bad news is that Groupon posted an even higher loss—$81 million, or -$0.12 a share, compared to $65.4 million in Q4 2011. This came as a big surprise to Wall Street, which was expecting a profit of $0.03 a share. The company pinned the blame on issues related to its overexpansion, but was oddly unapologetic.

"We did grow way too fast and with way too many people, because we wanted to gain market segment share," said Chief Operating Officer Kal Raman. "And we do have significant amounts of segment share in most of the countries."

So there ya go.

But investors aren’t convinced. A number of analysts have downgraded Groupon to a sell rating, citing concerns that Groupon just doesn’t have a convincing long-term plan in place.

Sterne Agee analyst Arvind Bhatia, however, remains optimistic. Groupon’s fourth quarter looks bad, he said, because of “the company’s strategy to accept lower take rates in order to attract higher quality merchants,” he wrote in a research note. “We expect the take rates to stabilize and improve in the coming quarters.”

While other investors are saying that Groupon’s long-term strategy is for the birds, Bhatia is saying that Groupon is actually a valuable buy for long-term investors willing to play the turn-around.

Still other analysts are saying that the problem is Groupon’s reliance on its direct sales business, Groupon Goods. It represents a large portion of Groupon’s revenue, but accounts for a smaller profit margin.

An interesting highlight from Groupon’s fourth quarter earnings: mobile now represents 40% of transactions in North America, up from one-third in October.

The company’s guidance pegs Q1 2013 revenue at $560 million to $610 million, which would be an increase of 0%-9%, suggesting that Groupon isn’t expecting much to change in the next few months. 

Shares were trading at $4.78 as of 10 am PST, which is still better than its all time low of $2.60 in November.

Image source: jroo.me