When people talk about tech stock investing, they are often referring to the hot tickers that are shooting through the roof.
And this shouldn’t come as a surprise. The technology (NYSEARCA:XLK) sector is known for delivering high growth rates, and the fastest-growing companies are always highly sought after.
Still, the company I want to talk to you about today is not exactly a high-flying ticker. As a matter of fact, it is a beaten-down stock that goes by the name of Groupon Inc (NASDAQ:GRPN).
If you’ve been following the e-commerce industry, Groupon should be a familiar name. The company has been around since 2008, and offers an online marketplace that connects consumers with local businesses.
Like I said, this is a beaten-down stock. In the past 12 months—a period where the U.S. stock market soared past its all-time high—GRPN’s stock price went from $4.35 to $2.51, marking a drop of more than 42%.
Groupon Inc (NASDAQ:GRPN) Stock Chart
Chart courtesy of StockCharts.com
Taking a look at Groupon’s stock chart, it’s easy to see that the company’s shares had a serious tumble very recently. One of the main reasons behind the latest drop in GRPN stock was an earnings report.
Groupon Inc reported second-quarter financial results on July 30, 2019. For the quarter, the company generated $532.6 million of revenue and an adjusted net income $0.01 per share. (Source: “Groupon Announces Second Quarter 2019 Results,” Groupon Inc, July 30, 2019.)
Is that good or bad?
Well, because GRPN is a widely followed ticker, it faces a set of expectations from Wall Street every earnings season. This time around, analysts expected the company to earn a profit of $0.02 per share on $565.7 million of revenue.
In other words, Groupon Inc missed both top- and bottom-line expectations. And keep in mind that the company’s earnings report was released at around the same time that the U.S. stock market had a pullback due to concerns surrounding the U.S.-China trade war. Combining this market pullback with Groupon’s missed expectations, it shouldn’t come as a surprise that the company’s shares entered a selloff. Since Groupon’s second-quarter earnings release, GRPN stock has plunged more than 25%.
It doesn’t help the case that Groupon’s numbers weren’t even good by their own standards. The company’s second quarter revenue represented a 14% decline year-over-year. And while part of that decline was due to a strong U.S. dollar, Groupon’s top line number is still down 12% for the quarter on a currency neutral basis.
For the bottom line, note that the company earned an adjusted profit of $0.02 per share in the second quarter of 2018. So its latest adjusted earnings of $0.01 per share represented a quite sizable drop.
Still, that doesn’t mean investors should just cross GRPN stock off their watchlist.
For one, the company is adjusting well to the trend of consumers moving from desktops to mobile devices. Groupon Inc’s mobile app added five million downloads in the past quarter, and added more than 22 million downloads in the past year. According to the latest investor presentation, approximately 75% of all Groupon’s transactions were conducted on mobile devices in the second quarter of 2019. (Source: “2Q19 Earnings July 2019,” Groupon Inc, last accessed August 12, 2019.)
Moreover, Groupon remains a go-to choice for many bargain-hunting consumers. It is estimated that one in five Internet users in the U.S. visit Groupon’s platform every month.
And now, the company is pursuing a new strategy to further boost user engagement.
On August 6, 2019, Groupon Inc announced the launch of “Groupon Select,” a new membership program that costs $4.99 per month. The program offers members additional deals across the platform, such as an extra 25% off local deals and an additional 10% off events and tickets. The company is launching the program in the U.S. but has plans to expand internationally. (Source: “Groupon Launches Groupon Select––New Membership Program Providing Access to Exclusive Savings and Insider Perks,” Groupon Inc, August 6, 2019.)
“Groupon Select is the best way to experience Groupon today and discover even more value on local services, experiences and goods,” said Groupon Chief Executive Officer Rich Williams. “It accelerates the savings we’re known for and makes Groupon an even bigger part of members’ daily routines.” (Source: Ibid.)
At the end of the day, don’t forget that despite being an out-of-favor stock, Groupon remains one of the more established players in e-commerce, and especially in the online-to-offline business. The company has more than 45 million customers worldwide and its app had received more than 200 million downloads.
As it stands, it’s hard to say when the sentiment will change towards this beaten-down tech stock. But if the company manages to get back on the growth track with its new membership strategy, I wouldn’t be surprised to see GRPN stock making a turnaround.