Groupon shares tumble 18% on disappointing quarterly results

The group buying company that made everyone crazy about the group buying craze has announced another less than stellar financial report – and its shares have plummeted 18% in after-hours trading as a result.

It’s not exactly a surprise. Many group buying companies have been in trouble as the industry evolves to more niche-based sites rather than general “all-in-one” deals.

But more importantly, it’s also yet another stumble in the company’s brief trading history after it was floated last year. Since last November, Groupon has lost a whopping 71% of its value. It is currently trading at just $US6.50, after listing at $US20.

Groupon announced revenue for the second quarter was $US568.3 million, up by 45% from 2011 and 1.6% on a quarterly basis. Profit was also up to $US28.4 million or four cents a share, up from Wall Street estimates of just three cents a share.

But while the revenue result was still positive, it was lower than Wall Street expected.

The key factor here is Europe. Groupon earns more than 50% of its money from overseas, but chief executive Andrew Mason said yesterday the region is suffering, particularly for discretionary items such as hotel stays.

Growth in the United States was above 60%, while in Europe it’s stayed at just above 30%.

“These more discretionary offers are more susceptible… as macroeconomic conditions have deteriorated,” he said.

In particular, pricing is an issue with current deals not lining up with consumer spending. Merchants have been a problem too – Mason says “merchants simply weren’t seeing the same value as they are in the US”.

That’s put a big dent in satisfaction ratings too, to the tune of 25%. Mason also said technology has been an issue, although didn’t clarify what that means.

“We have different technology around the world, and we have a goal to integrate these, but anyone with a history of a project like that knows it’s not a one-quarter change,” said Mason.

There’s also a concern over the Groupon Goods business, which Mason intends to expand. Analysts are concerned because of its lower profit margin.

It’s another disappointing turn for the group buying business. But it’s not a surprise. The local sector has also been slowing as merchants move towards more niche sites where they’re more likely to get a good return.