Groupon Future Looks Bleak, As Ascendiant Capital Lowers Estimates

Groupon Future Looks Bleak, As Ascendiant Capital Lowers Estimates
By GrouponRUS (Own work) [<a href="">CC BY-SA 4.0</a>], <a href="">via Wikimedia Commons</a>
Groupon Future Looks Bleak, As Ascendiant Capital Lowers Estimates
Groupon Inc (NASDAQ:GRPN) is not getting any favors from analysts toward its Q3 earnings announcement, according to the latest analyst report by Ascendiant Capital Markets LLC. The Internet technology company has been on the receiving end for its lackluster performance since the beginning of this year, which has also been signified by high rates of volatility for the ailing stock. Additionally, the e-commerce company has been experiencing internal challenges, including high rates of staff turnover involving the company’s leadership team.

Earnings Estimates

The equity research firm expects the company’s Q3 earnings to be in line with its estimates of about $590 million, which is just below the consensus estimate of $592 million. It has estimated earnings per share of about $0.03, as compared to the $0.04 consensus estimate, while operating income is estimated to range between $15 and $35 million.

Stock Volatility

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Groupon Inc (NASDAQ:GRPN) has been very volatile as exhibited in its latest surge and slump statistic at the NASDAQ stock exchange. The company’s stock had hit a high of $7.45, before slumping to $4.00, then rallying again by 25% to the current $5.19 per share. This indicates the level of uncertainty attached to the stock, as the up and down movement is likely linked to speculation following breaking news, or the earnings release.

Departing Executives Doing more Harm than Good

Groupon Inc (NASDAQ:GRPN) experienced an exodus of top executives over the last quarter, which saw Lee Brown, head of national sales, Jayna Cooke, a top salesperson, and Veit Dengler, SVP International, leave the company. Additionally, the company experienced a decline in the number of sales people, with more than 100 leaving the company during Q2.

Since its IPO price, Groupon Inc. (NASDAQ:GRPN) stock has fallen more than 75%. This is a great loss in terms of incentive to employees, whose compensation in the form of Employee share options has declined to near junk, as compared to the offer price of $20 per share.

Direct Sales Quandary

The e-commerce minority relies on goods sales, and this accounted for nearly all the growth reported in Q2. the analysts are of the opinion that a shift to Groupon goods may affect the profitability as they estimate that it has lower margins as compared to daily deals coupled with higher costs and inventory risks.

Investments Favor Long-term, But Hurt Short-term Earnings

Groupon Inc (NASDAQ:GRPN) has invested immensely in the recent past. The company bought and introduced new products, with the intention of improving its profitability, but the analysts feel that the acquisition of Breadcrumb (POS for restaurants), Savored (online provider of restaurant reservations), and introduction of Groupon Payments (payments service for small businesses) is favorable for the long-term future, but will adversely hurt short term earnings.

The Company’s Daily Deals Sales Business to be Affected by Slowing Industry Sales

The analysts are of the view that Daily Deals Sales Industry experienced a decline of 10% during Q3, as compared to Q2, and believe that this will subsequently affect Groupon’s daily deals sales business. Groupon holds a market share of about 50%, and should receive the full impact of the slowdown in the industry. The analysts are pessimistic about the probability of the company recording a growth from the unit.

While the analysts from Ascendiant are maintaining their 2012 revenue estimates of $2.35 billion, they are lowering their EPS estimate on the company’s stock to $0.13 per share, from $0.15. Subsequently, the analysts are also lowering the 2013 estimate to $0.30 per share from $0.35, while the estimated revenues for the same period are revised downwards by $40 million to $2.70 billion.

Finally, the analysts maintain their Sell rating on Groupon Inc (NASDAQ:GRPN), with a price target of $3.50, as compared to the current $5.19 per share.

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