By Marek Fuchs
By the end of Wednesday, the stock market will have Groupon’s (GRPN) fate fixed in its mind: life or death.
After all, the half-off voucher outfit appears, by a considerable number of measures, to be doomed going into its first-quarter earnings, due out after the close of trading. Their mainstay daily-deals business is dissipating in the face of myriad competition, top officials are fleeing the scene or getting fired (who could ever forget ousted CEO Andrew Mason's much-quoted exit memo?) and new lines of expansion hold questionable long-term worth.
By the same token, though, it is possible for Groupon to regain a sense of momentum. There is the dream of mobile, which fits in well with prevailing thought about the direction of online commerce. Or perhaps with its payment processing business, Groupon can – at least, theoretically – take a page from eBay (EBAY), another online novelty that found a second act in processing online transactions.
In sum, with death and redemption each a distinct possibility, the importance of this single quarterly earnings report is apparent. And ahead of the report, Wall Street seems cautiously optimistic, with shares of Groupon up around 4%. With these major stakes in mind, however, what are the giveaways that Groupon will be seen as worthy of life versus death once earnings are released?
The Case for Death
Dark momentum will be ascendant if Groupon misses its numbers. With the company’s troubles in mind, its numbers have already been cut to ribbons during the quarter. FactSet consensus stands at 3 cents earnings per share, but analysts have spent the better part of the quarter talking smack about Groupon, as well as shredding quarterly and full-year 2013 numbers. Even Piper Jaffray, which had a comparatively positive take on the company, talked down Groupon’s revenue numbers in recent days. If business fundamentals prove worse than Wall Street’s fizzling expectations, it will spell a particular degree of trouble. Hell hath little fury like a market forced to endure a fourth straight quarter of disappointing earnings, especially after anticipating such a growing caliber of disaster.
Languishing margins in Groupon’s ignoble overstocked merchandise division would lead to a further – and perhaps fatal – loss of hope. This common sell-extras business was designed to replace the glamour and high-margins of Groupon’s couponing business, which turned the company into a cultural and financial juggernaut, if fleetingly. Without a sign that margins in this new business can hold a candle to the old: page the undertaker.
More departures at Groupon would prove disastrous. Already, following the firing of Mason, Faisal Masud, a well-regarded deputy who ran that merchandise division on which so many thin hopes rest, set out for Staples (SPLS).
The Case for Life
It’s one too far to think that Groupon’s daily deal business will magically revive. The novelty has worn off and competition from the likes of Amazon (AMZN) and big retailers such as Target, which has its own daily deals site, has encroached. Similarly, it is immeasurably difficult to compete with eBay and others in the payment processing business, which is also jacked up with competition. Revival through peddling excess junk is quite a tall order. Surprisingly good numbers in any of these old or newfound efforts would, of course, prove redemptive, but they are still highly doubtful.
Groupon will be left to flap its gums about hopes and hunches, but if they can portray their initial mobile efforts into a viable cause for long-term hope, it will help put floor in the stock. Mobile is a current market fixation and perhaps for good reason. Mobile advertising and usage is growing exponentially. With Facebook’s (FB) recent success in the mobile realm after a fitful start, the market is poised to believe. Mobile hope – even if more rhetorical than numerical – can serve to buy Groupon some much-needed time.
Despite cash flow trends cutting against it, Groupon still has a pile of cash on the order of $1 billion. The last act of a desperate company is to sell a dream of what it can accomplish with its dwindling pile of cash, so lean in and listen closely: If they manage to convince traders that they can deploy the cash on brilliant acquisitions or can't-miss new products, they might be able to buy a several-month benefit of the doubt. The chances are slim but that's what desperate acts are all about. Listen for it.
In the end, look for signs of both life and death in Groupon’s earnings report. But as evident challenges lay siege to them and hope comes in the form of mere hunches – well, if you have to choose between life and death, anticipate death.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.