Groupon (GRPN) stock price has suffered a harsh reversal in the past few weeks as concerns about the e-commerce industry continued. It retreated to a low of $10.85, down by almost 45% from its highest point this year, giving it a market cap of over $431 million.
Groupon’s fall from grace
Groupon, an e-commerce company, has had a fall from grace in the past few years. Its market cap has dropped from over $7 billion to less than $431 million.
Like Yahoo, which rejected a buyout offer from Microsoft worth over $44 billion, Groupon also rejected an offer from Google worth over $6 billion.
At the time, Groupon was one of the most popular e-commerce companies, known for its discounts. It was often seen as a good alternative to the likes of eBay and Amazon.
The company’s growth has waned as customers have focused on buying from Amazon, Target, and Walmart.
Its annual revenue has dropped from over $2.2 billion in 2019 to over $514 million in 2023. It has also struggled to turn a profit, with its annual loss coming in at $55.4 million in 2023.
Groupon has also seen the number of visitors to its website drop in the past few months. Data by SimilarWeb shows that the number of visitors to its website dropped by almost 3% in August to 25.3 million. At its peak, the company used to have substantially more visitors.
Groupon slowdown continued
The most recent financial results showed that Groupon’s revenue dropped by 3% in the last quarter to $124 million while its gross profit remained flat at $112.7 million. Gross billings dropped from $393 million in Q2’23 to $374 million.
On the positive side, its net loss improved to about $9 million as the company continued to slash costs.
The company also lowered its forward guidance. It expects that its revenue dropped by 10% to $114 million, partly because of a website outage. It also sees its free cash flow remaining in the negative zone.
Groupon expects that its annual revenue will be between $495 million and $515 million. Analysts expect that the company’s revenue for the year will be $510 million followed by $542 million in 2025.
Cheap but could be a value trap
Groupon stock seems like an undervalued company since it trades at a price-to-sales multiple of 0.77, much lower than other e-commerce companies like Amazon and eBay. It is also significantly cheaper than the $6 billion that Google offered to buy it.
Groupon’s business has changed significantly over the years. It has reduced its marketing budget as a percentage of its total revenue, which has affected its growth.
Also, the company’s balance sheet has continued to worsen over the years. Its cash and short-term investments has dropped from over $750 million in 2018 to over $178 million in the last financial report.
Groupon’s total debt load has also risen and currently stands at over $227 million, up from $214 million in 2018.
The biggest challenge, however, is that the company has struggled to sign big brands on its platform.
At the same time, it has become an afterthought among most customers who are shopping online. Most of them have signed up to other popular e-commerce platforms like Walmart+ and Amazon Prime, which give out free and faster deliveries and more perks.
Therefore, I suspect that Groupon’s business will continue slowing down in the next few years as competition continue rising.
Groupon is not well-covered by Wall Street analysts. According to Yahoo, it is only covered by three analysts: Roth MKM, Northland Capital, and Goldman Sachs. Goldman has a sell rating while the other two have a buy rating.
The average Groupon stock price forecast by analysts is $17.75, much higher than the current $10.85. This, however, should be taken with a grain of salt because it comes from just analysts.
Groupon stock price analysis
GRPN chart by TradingView
The daily chart shows that the GRPN share price peaked at $19.54 in March, up by over 577% from its lowest point this year. This rebound happened after the company published encouraging financial results in May.
The stock has recently formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. In most periods, this is one of the most bearish chart patterns in the market.
The shares have moved below the 50% Fibonacci Retracement level. Also, the Relative Strength Index (RSI) has moved below the neutral point.
Therefore, the outlook for the stock is bearish, with the next point to watch being at $10.26, its lowest point on August 8. A break below that level will point to more downside, with the next level to watch being at $9.26, its lowest point in April and the 61.8% retracement point.
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