Groupon Inc became the latest young consumer Internet company to disappoint Wall Street on Monday, when the world's largest online daily deals provider missed quarterly revenue expectations and gave a cautious profit outlook.
Groupon shares slumped after the results, plummeting almost 70 per cent from where they priced in a huge initial public offering last November.
Groupon executives said Europe's weak economy and currency fluctuations dented results. They also said the company is working to improve the company's performance in that region.
Groupon shares slid to a life-time low of $6.05 in after-hours trading. The stock was recently down 19 per cent at $6.13 in evening action.
"It seems like they don't have enough control over various aspects of their business," said Sameet Sinha, an analyst at B. Riley & Co. "Will they be able to fix the situation by the end of this year? If not, we could see a very significant slowdown in growth in 2013."
This year, Groupon's issues have come to epitomize a clutch of Internet and social media companies, such as Zynga and Facebook, which debuted with much fanfare but have since failed to live up to lofty initial expectations.
Groupon grew rapidly as a private company by offering big daily discounts on local services, such as restaurants, to millions of online subscribers.
That original daily deal business is showing signs of slowing, so the company has expanded into new areas, such as consumer product sales and merchant services. Some of these new initiatives are growing quickly, but may not be as profitable as Groupon's original daily deals.
"The core daily deals business is slowing more than anticipated," said Clayton Moran, an analyst at The Benchmark Company.
Groupon is offsetting that by expanding its Groupon Goods business, which sells discounted consumer products, Moran added.
"But that is a concern because the Goods business is lower margin," Moran said. "It also indicates that the daily deal business may not have the potential that people previously thought."
For the second quarter revenue was $568.3 million, compared with $392.6 million in the second quarter of 2011, the Chicago-based company said.
Wall Street expected Groupon to report revenue of $573 million, according to Thomson Reuters I/B/E/S. Earlier this year, Groupon forecast second-quarter revenue of $550 million to $590 million.
Groupon said third-quarter income from operations would be $45 million to $65 million, excluding stock-based compensation costs.
Wall Street was looking for profit of about $70 million to $80 million on that basis, according to Herman Leung, an analyst at Susquehanna Financial Group.
Gross billings, which reflect the money Groupon collects from consumers who buy its daily deals, totaled $1.29 billion in the second quarter. That was down from $1.35 billion in the first quarter.
"Europe was really the driver there," Groupon's Chief Financial Officer Jason Child said. "That was macro headwinds and currency."
Groupon recently changed management in Europe and it is rolling out new technology in the region to make its daily deals more relevant and get them closer to potential customers, the CFO said.
Still, Child said the introduction of the new technology will take "the balance of this year."
Groupon's third-quarter profit outlook, which was lower than Wall Street expectations, reflects uncertainty in Europe and gives the company room to make investments to improve its performance in the region, Child told analysts during a conference call.
Groupon Chief Executive Andrew Mason said higher priced deals in Europe saw less demand.
"While deals such as laser hair removal and luxury hotel stays in Monaco give Groupon an element of discovery that is key to our brand, we've also found that these more discretionary offers are more susceptible to negative demand elasticity over the past few quarters as macroeconomic conditions have deteriorated," Mason explained during the conference call.
Mason and Child said Groupon is planning to strike a better balance between discounts and other benefits it provides to consumers in Europe and the service it provides to merchants in the region.
"We've learned in North America that the best way to maximize gross revenue dollars for Groupon is to find the right balance between consumer and merchant value," Mason said. "By doing so in Europe, we have a clear opportunity to unlock growth and achieve the same kind of market penetration of Internet users that we have in North America."