Wednesday, February 19, 2020

Groupon Slides On Results, May Exit Goods Business

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What’s happening: Shares of Groupon tumbled around 25% in extended trading, after the company reported disappointing results for its fourth quarter, missing consensus estimates for both revenue and earnings.

What happened: Groupon announced plans to exit the Goods business following the dismal quarter. The online marketplace company now intends to focus on the $1 trillion experiences market, feeling unsure of its survival in the retail market. Groupon also announced a reverse stock split, in an effort to lift its share price.

  • Groupon reported adjusted earnings of 7 cents a share for the fourth quarter, down from 10 cents a share in the same quarter a year earlier and missing the consensus estimate of 12 cents a share.
  • The company announced a 23% decline in its quarterly sales to $612.3 million, versus expectations of $705 million.
  • In a bid to support its share price, the company announced plans to implement a reverse stock split between 1-for-10 and 1-for-12.
  • Groupon named Melissa Thomas as its new CFO.

Why it matters: Investors were optimistic about Groupon’s results this quarter, hoping for a comeback by the company. Positive sentiment had sent shares higher by 28% year to date. Groupon’s results missed expectations by a wide margin, which pushed the stock to as low as $2.26 in after-hours trading.

With the launch of Groupon Goods, the company had tried to increase its customer base and reduce dependence on its core business which sells daily deals and discounts. However, the profit contribution from Goods has maintained a steady decline over the last four quarters, as the business failed to generate consumer interest. Revenue from the Goods business plummeted 32% in the fourth quarter. The decline in profit and revenue has forced the company to consider exiting the business this year.

Groupon is now shifting its focus from offering deals to the experiences marketplace and is expected to relaunch the brand with a new marketing strategy. The company appointed two new members to its board, Helen Vaid who currently serves as Chief Customer Officer at Yum Brands’ Pizza Hut and Valerie Mosley who is the CEO at Valmo Ventures LLC.

Groupon’s stock has lost 90% of its valuation since the company went public in 2012. The company is now hoping the experiences market will help it cut costs and drive revenue growth in the mid-single-digit range by 2022.

What to watch: Investors will focus on Groupon’s plans to relaunch its new brand, while looking for signs of growth in the company’s overall business.

The Markets Today

     

The Canadian dollar is likely to be in focus today, after dipping to one-week lows on Tuesday. The much-awaited inflation report is also scheduled to be released today.​

Context: The Canadian dollar hit a six-day low against the US dollar on Tuesday, as the coronavirus outbreak weighed on trader sentiment. The decline in Canada’s manufacturing sales only worsened the negative sentiment. As Canada is a major exporter of oil and other commodities, its economy growth would be hit by any global slowdown.

Details: Canadian factory sales declined for the fourth consecutive month, down 0.7% in December. The data was hurt by weak sales in motor vehicle assembly and aerospace products. Although a downturn was widely anticipated, the magnitude of the decline took the market by surprise.

Equity markets also drifted lower after Apple warned it could miss its sales forecast due to the coronavirus outbreak in China. The tech giant’s warning highlighted the threat coronavirus poses to global economic growth.

The Lonnie traded 0.2% lower at 1.3268 against the greenback. Canadian government bond yields also weakened on Tuesday, with the 10-year yield falling 3.2 basis points to 1.332%.

Why it matters: Following the Canadian dollar’s recent weak performance against the greenback, all eyes are on the inflation report, scheduled for release today. The inflation rate is a major consideration in the Bank of Canada’s interest rate decision. Experts indicate a 50% probability of Canada’s central bank easing interest rates as early as April.

What to watch: Canada’s Consumer Price Index, which came in flat in December, is expected to rise 0.2% in January. Preliminary estimates show a 1.8% increase in core consumer prices in January, after December’s 1.7% rise.

Other Markets: Most US indices closed lower on Tuesday, with the Dow and S&P 500 down 0.56% and 0.29%, respectively. The Nasdaq 100 edged higher by 0.02%.

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What else to watch today

     

Italy’s current account and ECB non-monetary policy meeting. The US will report MBA's index of mortgage application activity, housing starts, producer price index, Johnson Redbook Retail Sales Index and FOMC minutes as well as speeches from Federal Reserve Bank of Atlanta President Raphael Bostic, Federal Reserve Bank of Cleveland President Loretta Mester, Federal Reserve Bank of Minneapolis President Neel Kashkari, Federal Reserve Bank of Dallas President Robert Kaplan and Federal Reserve Bank of Richmond President Thomas Barkin.