Groupon Inc (NASDAQ:GRPN) is going through a tough phase this year. The company’s stock is on a continuous decline and has already lost half its value compared to that at the start of the year, leaving investors frustrated. The company failed at generating profits consistently for a long time, and this is cited as the main reason for such performance from the company, says a report from Motley Fool by Bob Ciura. The surprising part is that though the stock has crashed miserably, sales have grown at high rates.
Investments driving revenue, but lowering profits
To fuel top-line growth, Groupon is making aggressive investments in new categories and overseas markets. The company has been able to generate strong sales growth because of these initiatives, but the investors have been rendered impatient because of company’s inability to generate profits consistently.
Last year, a huge investment worth $260 million in cash and stock was made by Groupon for acquiring Ticket Monster for its expansion in Korea The company had plans for expanding in Asia and this deal was meant to serve as a cornerstone for it. The company even made attempts for expanding into the goods category and for this it acquired a United States based woman’s fashion site, Ideeli as well. There has been a huge growth in the sales as a result of these two acquisitions. Ticket Monster helped in raising gross billings by 133% in the first half for Groupon Inc’s ‘Rest of World’ operating segment.
These aggressive investments have also led to high expenses for the company, and this is a major cause for Groupon not being able to generate profits. During the first half of the year, the net loss per share went up by more than four times from $0.02 per share to $0.09 per share.
Lucrative stock compensation not helping Groupon
The coupon company offers lucrative compensation based on stock, and this practice has led to dismal profits for the company, says the report. The report notices a very disturbing trend from the financial reports of the company of past few years. Stock-based compensation charges in 2011 were booked at $93 million. There has been a significant growth in these charges for consecutive three years jumping by 11% in 2012 and 17% in 2013. All these expenses have been made at the expense of the shareholders as the existing shareholders have been greatly diluted from 362 million shares outstanding in 2011 to 675 million in the last quarter.
Sooner or later, Groupon needs to deliver profits to prove its business model until then “investors will have to be content with strong revenue growth, elevated investment, and little to no profits,” says the report.