Miami, FL–(EmergingGrowth.com Newswire – February 26, 2019) – EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on Groupon, Inc. (NASDAQ: GRPN)
Groupon, Inc. (NASDAQ: GRPN) is missing one target after another, giving investors undue shocks. The company’s fourth quarter results for 2018 were mixed. Even though the company made a 7 percent improvement in the non-GAAP earnings, it still did not match the analysts’ expectations.
The company’s revenues have declined by 8% year-over-year. The $799.9 million the company earned was lower than expected because of lower customer traffic. The good deals at the platform are now being foreshadowed by the local services market, which provides higher margins with smaller revenues. As the company is transitioning its business, revenue will continue to suffer.
Shares of the company have and should continue to decline because of the lukewarm earnings report and falling revenues, falling 11% on Feb. 13 due to the company not being able to add customers to its platform as it did in its onset. At the end of December 2018, it has 17.6 million active customers, which represents a gain of only 200,000 from the third quarter.
Groupon’s greatest challenge is its transformation which “will take time” according to a shareholder letter. The letter also acknowledged that “the operating environment grew increasingly challenging in the second half of the year.” It said that the new search algorithms on Google also reduced engagement and traffic for the company, which is expecting to continue in 2019 as well. The company said that its 2019 adjusted EBITDA could be $270 million, as compared to the $269.8 million for 2018.
A good opportunity for the company also lies in its international business where it reported a $67.6 million increase. About 50% of this was also due to favorable international exchange rates. International businesses’ percentage share in gross revenue increase from 30.5% in 2017 to 31.7% in 2018. The overseas business now also holds a larger portion of the company’s gross profits.
Are competitors doing well?
Most Groupon competitors are smaller private companies that are limited to geographical regions.Groupon, therefore, competes with sites like Yelp (NASDAQ: YELP), Grubhub (NASDAQ: GRUB), and Expedia (NASDAQ: EXPE).
Grub Inc. (NYSE:GRUB)
The company is facing grave issues of its own. The high growth company working in the online food delivery industry is the best in its business but is facing intense competition in the market. Its direct competitors have either received or are going to receive huge capital injections soon, leaving GrubHub with a smaller margin. The company will have to work with a double-edged sword, keeping its revenue share in the market intact while ensuring that revenue turns into profits. The company’s shares suffered double-digit losses after missing WallStreet’s Q4 2018 estimates.
Yelp Inc. (NYSE:YELP)
Yelp has frequently been called an overvalued stock. Citi recently downgraded its rating to neutral as it did not consider the company’s 2019 forecast was up to the mark. The firm suggests that Yelp could face some challenging business conditions in the short term. However, Yelp appears to be charging in the right direction, at least that it’s what Tom Forte from D.A. Davidson believes. The company is expecting a boost in its 2019 EBITDA margins and is planning to move the sales force out of San Francisco, which could help it save $10 million every year.
Expedia Inc. (NASDAQ:EXPE)
Another stock that was being called overvalued in Q3 and Q4 last year, Expedia is expected to bring in $12.34 billion in profits in fiscal 2019. The fourth quarter of 2018 was relatively good for the company as it beat EPS by $0.16, totaling $1.24. Its revenue reached $2.56 billion, beating the estimates by $20 million. In Q3, it missed the estimates by $20 million, but its revenue was $3.28 billion.
Why is Groupon a ‘Sell’?
Groupon is what we call a dead stock. Its business will continue to be affected by the changing online algorithms at Google as well as its own transformation from deals to local services. This transformation will continue to affect the company’s revenues, and 2019 could be one of the ‘struggle years’ for the online deals providing company.
Its smaller competitors, while not public companies, are gaining ground. Ebates is still gaining traction along with Honey. Both allow users to install browser extensions and get quick and easy discounts on all their purchases. Then there are companies like LivingSocial, RetailMeNot, Tippr, Yipit, and Woot are gearing up to capture the fancies of their market. While struggling with reduced engagement, Groupon will have to manage competition as well.
Investors holding on to the Groupon share will be better off getting rid of it for now because 2019 doesn’t seem to be a good year for the company. If it successfully manages to move away from these troubled waters, then Groupon could be a good stint for the long run.
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