Groupon earnings beat Q2 expectations – Revenues miss
Anyone that dumped their shares of GRPN on the move to $ 8.05 this morning – kudos to you! Watching the momentum of the pricing from the start to the finish of the day was almost identical to what happened to share pricing back in May – except for one tiny yet major detail. There was no follow through buying going into the close to push share pricing above the early morning $8.05 number. As a matter of fact, during the last two hours of trading, unlike in May, there was absolutely zero confidence that the big G would have a good earnings announcement. Sure, there was some late short covering in the last thirty minutes, but the damage was already done.
On Friday my calculated assumption surrounded short covering going into the weekend along with a possible continuation pattern on Monday (today). This is what I stated Friday: “Since I don’t anticipate earnings, the Street will primarily be focused on revenues and the outlook heading into quarters three and four.” Monday morning started as expected, soon after, the party was over.
The company posted second-quarter earnings excluding items of 8 cents per share on revenue of $568 billion. Net income was $28.4 million, or 4 cents per share, which includes a charge of $25.4 million for stock-based compensation and acquisition-related expenses.
Earlier this year, Groupon forecast second-quarter revenue of $550 million to $590 million. Analysts had expected the company to report earnings excluding items of 3 cents a share on $573 million in revenue, according to a consensus estimate from Thomson Reuters.
The company forecast third-quarter revenue in the range of $580 million to $620 million. Analysts had predicted revenue of $604 million for the current quarter. This quarter, Groupon also changed the way it accounted for revenue (again). Consolidated revenue presentation now includes third-party revenue, which is related to sales for which Groupon acts as an agent for the merchant, as well as direct revenue.
Accounting for revenue in this manner raises red flags – once again. The company is viewed as only getting a percentage of that revenue. This procedure raises the question: is this accounting measure falsely inflating overall revenues? Ugh – please gorilla of daily dealers, I beg of you, do yourself and more importantly your shareholders a favor and stick to GAAP.
Another bone of contention was the European connection.
The European economy is still sucking eggs
The weak European economy contributed to lower sales growth than expected at Groupon Inc., particularly for discretionary items such as laser hair removal and luxury hotel stays. Groupon generates more than half of its revenue from outside of North America, and most of that comes from Europe, where economic worries are affecting sales. A weaker euro and U.K. pound also translate into fewer U.S. dollars.
After the early morning melt up on excellent volume, shares tumbled before shorts came and covered within the last half hour of trading. Groupon tagged $ 8.05 on an intra-day basis. The shares closed at $ 7.55 up $ .11 (1.48%) on 30.38 million shares. That is about 350% above the normal daily trading volume for GRPN.
Shares of GRPN were tanking in after hours. I have seen prints at the $ 6.08. The last quote I have is $ 6.12 – down $ 1.43 (18.94%).
Trading the technicals
As I mentioned in Friday’s report, “Monday and Tuesday will be key for setting up Groupon’s direction for the balance of 2012. Should GRPN take out the $ 7.60 level on good volume, there could be a real shot at the $ 8.90 level.” While shares of GRPN acted well in the morning on excellent volume (taking out the $ 7.60 level), towards the end of the session, there was a technical breakdown of an intraday uptrend that created a reversal pattern.
This afternoon, I had several e-mails asking me about the derivative trade I mentioned on Friday. I was monitoring the August 7 Call option. That option gained another 40% beyond Friday’s close meaning that some traders had a shot at 146% return in two days. For those that got in and especially out – pat yourself on the back all the way to the bank. There is a very real possibility that on expiration day (Friday, August 17th), that option will expire worthless – hence the risk of option or derivative trading, especially during earnings announcements.
In my opinion, we could see another new low in shares of GRPN tomorrow. Shorts should push the shares lower, investors will bail, and it’s quite possible there will be margin calls. The next key and majorly important line in the sand for shares is $ 5.00. Prints below $ 5.00 could create additional margin issues and some of the funds holding shares are NOT allowed to hold stocks trading under $5.00 (that depends on the funds individual charter).
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