New Analyst Worries as Groupon Shares Fall 25%

By Matthew Lynley

Groupon’s stock is in free-fall after it reported its third-quarter earnings, which were a whiff when it came to analyst expectations.

As of this morning, the stock fell below $3.

Its shares are down around 25%, with analysts coming out with highly disappointed assessments of Groupon’s performance in the third quarter.

The stock is down more than 85% on the year. One analyst even said the stock was worth $2.

Here are some reactions:

Sterne Agee’s Arvind Bhatia and Brett Strauser: The company’s core daily deal business deteriorated further. “International” was particularly discouraging as it lost money in the quarter—a meaningful reversal after reaching profitability earlier in the year. The company and the stock will likely remain in the “prove to me” camp until trends reverse on a sustainable basis. Reiterating Neutral.

Evercore Partners’ Ken Sena and Andrew McNellis: Our newly lowered target of $2.00 (from $3.00) implies that Groupon should trade at 6x our EBITDA estimate… Therefore, we see further risk and maintain our Conviction Underweight rating.

Morgan Stanley’s Scott Devitt and Zachary Arrick:  1) Deal fatigue is evident. Our thesis that increasing merchant density and utilizing deal targeting would prevent deal fatigue proved untrue. While active customers grew 45% annually, purchased deals increased by 9%. Further, voucher [average selling price] and [trailing twelve month] gross billings per active customer both declined. 2) Long term margins reduced. We are lowering Groupon’s long term margins due to Goods revenue gaining share (higher cost of revenue) and lower gross billings per local deal (less potential for G&A leverage).

Jacqueline McKenzie Carey Mulligan