RetailMeNot Inc (NASDAQ:SALE)’s second quarter earnings greatly disappointed investors and analysts. RBC Capital downgraded the company’s stock to Hold, while even the bullish William Blair sees a potential downside of $4 to $5 from RetailMeNot’s share price.

RetailMeNot

RetailMeNot disappoints

Profits were $4.3 million or 8 cents a share, while revenue was $59.5 million for the second quarter. The online coupon provider posted non-GAAP earnings of between 17 and 18 cents a share. A spokesperson reportedly told Barron’s that non-GAAP earnings were 17 cents a share, while Goldman Sachs analysts Debra Schwartz estimated that the number was actually 18 cents. That non-GAAP number was not reported in RetailMeNot’s press release, so analysts and investors appear to have been comparing the GAAP number of 8 cents per share to the non-GAAP consensus estimate of 17 cents a share.

RetailMeNot had guided for second quarter revenue to be between $58 million and $60 million, so the online couponing company did come in toward the high end of its guidance. However, analysts had been projecting revenue of $60.2 million, so the company missed that estimate. RetailMeNot cited higher investments as being the primary reason for the decline in net income. The company said most of those investments were made in product development, sales and marketing.

In the current quarter, management guided for revenue of between $53 million and $57 million, compared to the consensus estimate of $62.6 million for the quarter. RetailMeNot also cut full-year guidance from between $276 million and $282 million to between $262 million and $270 million.

Analyst downgrades RetailMeNot

In a report released after RetailMeNot’s earnings, RBC Capital Markets analyst Mark Mahaney downgraded the company from Outperform to Sector Perform. He had upgraded the company to Outperform in January based on valuation. He said in his latest report that his long view of RetailMeNot was “clearly” wrong because its stock has fallen more than 31% so far this year. Some of that decline was included in his estimate, as when he released his report last night, the stock had fallen 21% in after-hours trading.

The analyst said RetailMeNot’s biggest problem during the quarter was the impact from Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s algorithm change. However, he provided a couple of reasons why he downgraded RetailMeNot now. He said the implied fourth quarter guidance suggests a sequential 1,000 basis point recovery in EBITDA margins, which he thinks is “overly aggressive.” In addition, he thinks Google could pose an even bigger threat to the company’s fundamentals down the line as the search giant is expanding into ecommerce. Also Mahaney said at 27 times P/E/ and 10 times EV / EBITDA on his 2014 estimates, RetailMeNot isn’t cheap.

Not every analyst abandons RetailMeNot

Barron’s reports that William Blair analyst Ralph Schackart remains a bull on RetailMeNot in spite of last night’s earnings report. He reiterated his Outperform rating, although he sees a downside of between $4 and $5 a share at current levels. That assumes a year over year decline in EBITDA to $80 million, which is even lower than management’s revised guidance range of between $87 million and $95 million.

Nonetheless, he still sees the potential for an upside to between $24 and $25 a share, as the valuation could be “attractive to investors who can stomach near-term volatility” while it works through the issues with Google’s new algorithm.