Rex On TechsThe spring (and summer) of Groupon's discontent
6/5/12 4:37 PM ET (MarketWatch)
SAN FRANCISCO (MarketWatch) -- Now more than 50% off: One share of
The company's taken a couple of beatings in the stock market recently, with Groupon (GRPN) shares closing at $8.95 Monday after also sliding Friday, when the lockup period for insiders to sell their stock expired. (Tuesday saw a recovery of more than 9% to end the day at $9.79.)
In keeping with Groupon's tradition of offering goods and services at big discounts. you now can snap up the stock for less than half the $20 it debuted at in November 2011.
Also on Tuesday, a rosy research note on Groupon came from Benchmark analyst Clayton Moran. After meeting with the company's investor-relations team last week, he said Groupon's market opportunity "remains enormous" and that it should keep improving marketing efficiencies. Moran also maintained his buy rating and $20 price target on Groupon.
But what are those efficiencies accomplishing?
Few companies of late have burst onto the tech/Internet/Web 2.0/social-networking and even retail scenes like Groupon. The company was still a niche provider of online deals back in late 2010, when
Even though Groupon shares were rising Tuesday, the company's market valuation is still barely above the size of the check that Google was said to be ready to write about a year and a half ago. Furthermore, some analysts, such as Sucharita Mulpuru of Forrester Research, say that such a valuation remains way overblown.
"[Groupon's been] overvalued at $6 billion for years now," according to Mulpuru. "It could have been a solid profitable business that gradually got to $1 billion over time. Instead, they gunned for hypergrowth, spent a ton of investor money and now have to figure out how to keep growing."
While Groupon's post-IPO business has yet to set the world on fire, its market-cap decline, along with lingering doubts about its business prospects, picked up speed in April when Groupon said it would have to restate its fourth-quarter results because, of all things, it needed to set aside more money to cover refunds to customers. Read more about Groupon's restatement.
Should the erratic nature of Groupon's business, results and stock performance come as any surprise? This is a company that appears to be throwing everything deal-oriented at the wall to see if it sticks. Location-based offers, vacations, goods and services, even a rewards program where if you spend enough at a business, you'll get a Groupon to use there. Just this week, the deals I've received range from $49 for $132 worth of golf (I don't play); $279 for $588 worth for a stay at the Stonehedge Inn & Spa in Tyngsboro, Mass. (first I thought it was for Stonehenge, but then my excitement faded); and $39 for $150 worth of Jazzercise. (Have I slipped through a wormhole back into 1986?)
Nevertheless, just when it seems Groupon is all over the place, the company does something like it did in May, reporting first-quarter results that beat expectations and which, at least temporarily, gave it some breathing room. Read more about Groupon's quarterly report.
Mulpuru, for one, isn't bowled over. "The last quarter of growth came from having lots of deals simultaneously and extending offers beyond just one day. I'm not sure there are a lot of levers left like that," he said. "So in short, at some point, it has to become clear to everyone that the emperor has no clothes."
Tuesday's gains aside, Groupon continues to stir a lot of skepticism. Maybe the biggest deal that Groupon can now offer is itself.
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