If there's a time capsule of 2014, there's a fair chance that someone left a now-expired Groupon (GRPN -0.67%) voucher in there. The local experience discounter was all the rage a decade ago, but like a great deal on the platform itself, there's been a pretty dramatic markdown here.
Groupon stock is trading 97% below the split-adjusted all-time high it hit the day it went public in late 2011. Its trailing revenue of $511.9 million over the last four quarters is whopping 83% below its top-line peak set a decade ago. A rough second quarter this week isn't going to scratch the bullish itch, but maybe it's time to approach the investment the way you would an intriguing deal on the Groupon app. The price seems cheap enough to consider tapping the "buy" button. A desperate seller could be a buyer's opportunity.
It's a flash flood
Let's start with Tuesday afternoon's disappointing financial update. After delighting investors in May -- with its first year-over-year increase in revenue since late 2015 -- the top line turned negative again in this week's second-quarter report. Revenue declined 3% to $124.6 million. It's a dip, but the performance is the smallest percentage slide since 2016 outside of Groupon's head-turning first quarter.
The news gets better when you consider that Groupon was held back by weakness in its fading international operations. A 21% drop internationally -- now accounting for just 21% of the revenue mix -- weighed down a 3% increase in North America. Its flagship local business improved by 7% in North America for the quarter.
Groupon's refreshed guidance suggests that this will be its eighth consecutive year of declining revenue unless it nails the top end of its range. However, there's been a lot of growth in those eight years of cascading. Groupon has spent the last few years unloading its high-revenue but low-margin products business as well as retreating from international markets. It just announced that it would be pulling out of Italy as a result of a negative tax assessment ruling. Groupon may be shrinking in scope, but it's starting to pay off in terms of focus.
Image source: Getty Images.
Vouching for vouchers
There isn't a lot of Wall Street coverage on Groupon these days, and that's not necessarily a bad thing. One of the analysts still tracking the flash sales specialist is Sean McGowan at Roth MKM. He feels that Groupon's new management -- Dusan Senkypl was brought in as interim CEO last year but tapped as the permanent CEO in May of this year -- is making the right moves to improve its business. He points out that technical glitches resulted in higher costs for the quarter, but that the issues were temporary. He remains bullish on the stock. He did lower his price target from $28 to $26, but that still represents 76% in near-term upside from its lower open of $14.77 on Wednesday.
The bottom line has been a mess, and Groupon has fallen short of Wall Street's profit targets every quarter over the past year. However, it did generate positive free cash flow and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter. It expects to stay in the black on both of those fronts for all of 2024.
Groupon has been humbled over the years. It had to declare a confidence-rattling 1-for-20 reverse split early in the pandemic to retain listing compliance. Even now it's still winding down non-core operations and cashing out of investments it made in rosier times. It expects this year's divestments to result in proceeds of roughly $90 million, a healthy cash infusion to an already reasonably positioned balance sheet for a company with a market cap of just over $600 million.
The stock is trading for just 14 times what analysts see it earning next year. Tuesday's update may lead to some slight revisions, but the turnaround is still in sight. Groupon may be off most investor radars, but the stock has nearly doubled since the start of last year. There are signs of life at Groupon. You just need to know where to find the pulse.
