One of the biggest successes in recent years in internet commerce has been the rise of group buying sites, and notably Groupon. But does the company’s first results after its flotation, which disappointed the City, show that the formula is flagging?
Groupon has just announced its first results as a public company; it floated on the US Nasdaq stock exchange in November, buoyed up by a lightening start and subsequent growth, and just before reports on flaws in the group buying concept got a hold in the media.
Now the daily voucher company has issued its first set of results and in investment parlance, has “disappointed.” And if there is one thing you don’t do as a company announcing its maiden results, is to disappoint. The theory goes that when a company floats, the first year’s figures should be in the can so to speak. Meaning that all disappoints should be a few years down the line. And to disappoint is to let down all the fund managers who supported your flotation.
All round, it’s pretty bad form to shock the City on your first results and Groupon will feel the wrath of it’s big investors with some quiet chats in the Boardroom. Smaller shareholders will make their sentiments felt at the Annual General Meeting, but you get the picture.
So given it’s bad news to not reach your targets, how significant is it that rather than announce a small profit (as analysts expected), the company has announced a net loss of £27 million ($42.7 million). Now, okay, when compared to the previous year, things have improved mightily, because the loss was $386 million, but then again, that will have included most of the costs at getting traction in a new market.
However, will the investment feel legged over by the Groupon management and reek quiet revenge? Look what’s happening over at Yahoo and you can see that an investor spurned is a very dangerous animal indeed.
The poor results led to an instant 13% fall in the share price as market makers took the stock down in anticipation of some severe selling.
The company blamed exceptional tax charges and that the underlying business was still strong what worries investors is that the number of people buying Groupon vouchers (some 33 million and 20% up), is again less than was expected. Which simply put, say the analysts, that not enough people are buying the company’s vouchers.
And if that magical number continues to keep rising more slowly than expected, or horror upon horror, starts to fall, then investors are going to start to vote with their feet and put down Groupon as yet another example of an internet bubble. They inflate pretty quickly, but burst far quicker.
Group buying works, but can Groupon maintain the pace of growth expected by Wall Street.
Guest Author: Biljana Dimovska, Cayenne Red.
Biljana is a member of the digital marketing team at Reading based PPC Agency Cayenne Red. She is a regular contributor to the media on how companies market themselves in the digital age.