August 15, 2012 in Business

Groupon stock down

Experts: Too many daily Web deal options
Ryan Nakashima Associated Press
By the numbers

Active customers grew only 3 percent to 38 million compared with the first quarter, while spending per customer over the previous 12 months fell to $165. That compared with $179 in the first quarter, $187 in the fourth quarter of 2011 and $189 in the third quarter of 2011.

LOS ANGELES – Groupon’s stock is 27 percent cheaper Tuesday, but that doesn’t make it a bargain.

Its stock fell to an all-time low as analysts slashed targets and ratings on the online deals company after it reported its first-ever quarter-to-quarter decline in gross billings, a measure of how much money Groupon collects from customers.

Groupon blamed the weak economy in Europe and unfavorable currency-exchange rates.

But analysts pointed to a more troubling possibility: online deals fatigue.

Groupon Inc. pioneered the online daily deals market, which offers subscribers deep discounts on everything from spa sessions to tequila tastings. Although it has raced to build market share, similar businesses are easy to set up. The model sparked a flood of copycats, including LivingSocial, Google Offers, Travelzoo, DealOn and SocialBuy. Together, deals flood online mailboxes multiple times a day.

“It appears the daily deal business has run into a wall,” wrote Clayton Moran, an analyst with Benchmark Capital, in a research note. “From what we can tell, the bears were right.”

Moran slashed his price target on the shares from $20 to $7 and downgraded his rating to “Hold” from “Buy.”

The stock fell $2.04, or 27 percent, to close at $5.51 Tuesday. That’s 72 percent below its initial public offering price of $20 in November. Groupon had no comment Tuesday.

The Chicago-based company said it was aiming to solve some of its problems in Europe by investing to update its technology, changing its mix of promotions to lower-priced services and stepping up its own advertising to increase brand awareness.

Those investments were also questioned.

Mark Mahaney, an analyst with Citi Research, cut his price target on shares to $9 from $19, and downgraded them to “Neutral” from “Buy.”

“The (return on investment) and timing of necessary platform investments won’t be known for some time,” he wrote in a research note Tuesday. “And this management team doesn’t yet have an execution track record. And in the meantime, the core Daily Deals business is sharply slowing.”

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