Groupon Inc. (GRPN) is among the leading online retail service providers. The company provides daily deals to users. It evaluates the interest of consumers in a deal, and if the deal receives adequate response from the consumers, the company negotiates the deal with the local business. Thus, upon ensuring that consumers will utilize the deal and the local businesses will benefit, Groupon provides coupons to the consumers that can be redeemed at the local business.
The company provides deals for more than 500 markets in 44 countries. Groupon has witnessed success in past financial periods, and it has also been credited as the fastest growing company in recent history; however, the recent financial performance of the company is very weak. There are a number of factors responsible for the weak performance, the most prominent being unsustainably high operating costs. Even though the revenue of the company is growing steadily, the significantly high costs are keeping the company from being profitable.
Groupon’s Financial Performance and Competitors
For the fourth quarter of 2012, Groupon’s revenue was $638 million; this is significantly higher than the company’s revenue in the same quarter last year, which stood at $492 million. The rise in revenue suggests the pace at which the scope of the company’s business has expanded. Although the company reported an incline in revenue, the earnings reported by Groupon were disappointing. For the fourth quarter of 2012, the net loss of the company was $81 million, higher than the net loss in the same quarter last year which stood at $65 million. Thus, the net income decreased by 24.7%. Such weak financial performance has also had a negative impact on the market performance of the company. The following chart represents the company’s financial performance over the past five quarters.
The chart shows that the revenue has grown impressively in the most recent quarter; however, the decline in profit is also at its maximum in the same quarter.
Groupon’s main competitors are Facebook Inc. (FB) and Google Inc. (GOOG). The main business objective of Groupon is to promote local businesses, and its revenue is generated from the deal coupons that are redeemed at local businesses. Both the competitors of Groupon, Facebook and Google are also engaged in the promotion of local businesses; however, their revenues are mostly generated from ads. The financial performance of both competitors of Groupon is significantly better than Groupon’s. Facebook reported a profit margin of 4.04% in the fourth quarter of 2012. Facebook also plans on maximizing its revenue by capitalizing on the opportunities to generate it. Google is leading the IT industry with a very impressive financial and market performance. Google reported a profit margin of 20.16% in the fourth quarter of 2012.
Groupon’s Market Performance
The market performance of Groupon has been highly volatile over the past months. The volatility can be seen by the 52-week range of share price of the company which is $2.60 and $14.93. The difference between the two extremes represents the extent of fluctuation in the share price. At the time of this edition, the share price of the company is within the range of $5.60 and $6.09. The following chart represents the trend of the company’s share price over the past year.
The chart indicates that the share price has followed a downward trend throughout the year, along with some steep declines in share price. This downward trend is due to the continuously weak financial performance of the company. Several sharp peaks can be observed that represent the highly unpredictable nature of the stock.
After analysis of relevant factors, in my opinion, investors should sell their investments in Groupon. The financial performance of the company is consistently weak, and this factor has had a negative influence on Groupon’s market performance. Although Groupon recently fired the company’s CEO in an attempt to give the company a new direction, the results of this step cannot be known for some considerable time. Thus, considering the level of uncertainty attached to Groupon’s market performance, holding or buying the company’s shares will be highly risky at this point.