Groupon(NASDAQ: GRPN) stock has seen its shares collapse this week, according to data from S&P Global Market Intelligence. After reporting weak growth and more losses in the second quarter, Wall Street sold off the digital coupon platform's stock by over 30%. As of market close on Thursday, Aug. 1, Groupon is down 32% this week. It is off 97% from all-time highs set over a decade ago.
Here's why Groupon stock was falling once again this week.
Declining revenue, high marketing spend, unprofitable
In its second-quarter earnings report on July 30, Groupon posted disappointing financial news for investors. Revenue fell 3% year over year to $124.6 million. Investors hate shrinking revenues, so this was a negative right off the bat. Further down the income statement, it gets even worse. Groupon spent $36.5 million on marketing in the quarter, or 32% of gross profit. This was a huge jump from 20% of gross profit a year ago. Even though it is spending more on marketing, Groupon's revenue is falling.
Net income was negative $9.4 million, another quarter of losses for the company. It has never generated a consistent profit, which gives investors minimal confidence in the stock. If it can't generate positive earnings, the company will eventually go bankrupt, which is obviously bad news.
Groupon has been troubled ever since its business model imploded around the 2016 period. Revenue peaked at over $2.5 billion. Over the last 12 months, it was a touch over $500 million. No wonder the stock is off 97% from the highs set many years ago.
Should I buy the dip?
Shares of Groupon now look cheap on a numerical basis at $12. But this does not matter. A stock's actual price is irrelevant. What matters is the market capitalization, and how much in earnings the company can generate versus that market capitalization.
For Groupon, it can generate no earnings. So, instead of creating value for shareholders, it is destroying value. The stock has fallen 97% because of this, and it fell yet again this week. Unless it somehow fixes its revenue and turns to profitability, Groupon stock will continue heading lower. There is no reason to buy the dip on this once beloved start-up.
Should you invest $1,000 in Groupon right now?
Before you buy stock in Groupon, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Groupon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $717,050!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 29, 2024
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
