Groupon (GRPN) is undoubtedly a stock in trouble. Shares of GRPN stock have cratered more than 50% year-to-date, most recently thanks to the “daily deals” company posting disappointing quarterly earnings.
But while Groupon stock is facing pressure thanks to weak guidance and continued losses, the details of the recent GRPN earnings report are actually pretty encouraging.
With so much negativity around GRPN stock, here’s why it might be wise to consider swooping in and making a bargain buy in this embattled stock:
GRPN Actually Beat Expectations: Yes, guidance was weak. And yes, Groupon continued to operate at a loss in Q1. However, the quarterly loss was narrower than expected with a loss of just 1 cent per share vs. forecasts of a 3-cent loss, and Groupon’s revenue of $758 million topped forecasts of $738 million. While future guidance did disappoint, current performance isn’t as bad as expected.
Groupon Has First-Mover Might: It’s worth noting, too, that while guidance is weak, Groupon continues to grow with six straight quarters of year-over-year revenue growth. More importantly, Groupon remains entrenched even as others continue to push into the the daily deals space, including Amazon (AMZN), RetailMeNot (SALE), Coupons.com (COUP) and privately held LivingSocial. As Jordan E. Rohan of Stifel puts it in a recent note, “the company has strategic value with a large local sales force and deep integration with thousands of local retailers.” As one of the original daily deals companies, GRPN remains very much on top of the space.
GRPN Has Gone Mobile: Within Groupon’s growing business, mobile continues to be a significant factor — which is crucial as more folks shop and surf on their smartphones and tablets. About 54% of global transactions were mobile in March, and GRPN announced 10 million downloads of its app last quarter. Mobile is crucial for any consumer tech stock, and Groupon is clearly figuring mobile out.
Click to EnlargeGRPN Gets Physical: I latched on to the Groupon Goods segment of earnings about a year ago, whereas GRPN makes offers for physical goods instead of local services like restaurants. It’s important to keep this revenue stream in focus as a driver of future growth. Not only have goods continued to claim a higher share of gross billings, but the Goods segment actually represents more than half of all North America revenues. The profits are much smaller here right now, but it has been an important pivot as the local deals space has been challenged.
Can Sentiment Get Worse? Groupon is only slightly lower than where it traded to start 2013. Meanwhile, revenue has continued to slowly climb and losses have continued to slowly narrow. Investors have been extremely negative, and they’ve had good reason to doubt GRPN … but let’s not forget the company has $1.2 billion in cash and $2.3 billion in assets … on a market cap of just $3.8 billion and zero long-term debt!
Does this sound like a company going to zero anytime soon? No way. But that’s how Wall Street is treating GRPN stock right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.