If you enjoy prepaid experiences at a discount, you may want to try Groupon (NASDAQ: GRPN) or its stock on for size. Shares of Groupon have plummeted 41.8% in 2018, practically a lock to have its first down year since 2015.
A lot of things are going wrong for Groupon after back-to-back years of gains. Investors have tired of Groupon's gradual fade, as year-over-year revenue has now declined for 11 quarters in a row. It has fallen short of Wall Street's revenue targets in each of the past two financial reports, and recently it warned that it won't meet its earlier free cash flow goal of $200 million for 2018. Groupon's on sale, but as anyone with an expired Groupon voucher knows, sometimes even a big discount isn't enough.
Image source: Groupon.
The deal of the art
Declining revenue in and of itself isn't a deal-breaker. This unfortunate string of 11 consecutive quarters of top-line slides started in the first quarter of 2016, and we already know that the stock rose in 2016 and 2017 -- up a hefty 66% through that two-year run. The rub is that the initial declines stemmed from Groupon's bowing out of unprofitable countries and scaling back its low-margin Groupon Goods merchandise sales business. Declining revenue these days is organic and problematic.
Groupon vouchers just aren't as popular as they used to be. The 39.5 million units sold during the third quarter is 11% below the prior year's pace, weighed down by a scary 17% plunge in North America.
The former dot-com darling insists that it's working smarter these days. The $592.9 million it delivered in revenue for the third quarter fell short of the roughly $600 million it was forecasting three months earlier, but gross profit per active customer is on the rise. Groupon's working on strategic alternatives that include enhancing customer experience, unlocking international potential, improving operational efficiency, and establishing Groupon as a true platform. Groupon is hoping to eventually evolve into card-linked offers instead of its dated voucher model, but challenges await as it tries to take on other discounters with its Groupon+ offering.
Growth matters, and even though investors were willing to initially look the other way as it made more with less, it's clear that the market is going to wait for bookings to turn around before bidding the stock higher again. This has been a brutal year for the stock that has shed nearly half of its value, but thankfully Groupon still has a cash-rich balance sheet that will give it time to ramp up its marketing spend in the near-term and explore opportunities in the long-run until it nails the right combination.
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