By KEVIN SHALVEY, INVESTOR'S BUSINESS DAILY
Groupon's (GRPN) stock plummeted in after-hours trading Wednesday, after the daily deals leader's Q4 financial report lagged analyst expectations.
The company reported a loss of 2 cents per share, minus special items. Analysts polled by FactSet Research had expected a profit of 3 cents a share. The stock was down 15% after hours, after the company released its first quarterly results since its $700 million initial public offering in November.
Yet, the results were a big improvement over the year-earlier quarter, when Groupon lost 53 cents a share.
Groupon's Q4 sales, minus the percentage that goes directly to marketing partners, were $506.5 million, up 194% from $172.2 million in Q4 2010. Analysts were expecting $473.1 million.
The Chicago-based company stayed in the red despite cutting its marketing costs. The company said it cut marketing spending to $156.5 million in the quarter, down 22% from the year-earlier quarter.
"A year ago, our cost of marketing accounted for more than 100% of our revenue. This quarter, that was down to about 30%," Groupon CEO Andrew Mason said during an earnings call Wednesday.
Since Groupon's IPO, analysts have voiced concerns about whether it will be able to trim its marketing costs and still maintain steady subscriber growth.
Groupon said it ended the quarter with 33 million active customers worldwide, up 20% from the prior quarter. But that is a slower growth rate. For the year, it says its number of active customers jumped 275%.
That subscriber growth has accounted for the lion's share of revenue growth, analysts say.
"If they reduce marketing, then revenue growth will slow down and that will obviously slow their numbers in coming quarters," said Sameet Sinha, an analyst with B. Riley & Co., who rates the stock a sell.
Analysts had expected what would have been the 3-year-old company's first profitable quarter.
It wasn't clear what analysts were expecting for the current quarter, though they do expect a profit this year. The company's guidance calls for a profit of $15 million to $35 million in the current quarter.
"At this point, I would expect that as long as they keep their marketing spend down, they're going to be profitable going forward," Aaron Kessler, an analyst with Raymond James, told IBD.
The company expects sales of $510 million to $550 million in the current quarter. Year-earlier sales weren't available.
With analysts predicting Groupon's first profitable quarter, the stock rose 1.6% in the regular session to 24.58.
Groupon shares were up 18% this year, outperforming the Nasdaq by about 7%, William Blair analyst Ralph Schackart said in a pre-earnings note. William Blair rates Groupon as outperform, or buy.
Clayton Moran, an analyst with the Benchmark Co., says he believes traders overreacted after hours. That's because the earnings were driven down by $34.8 million in one-time taxes on Groupon's new international headquarters, in Switzerland.
"The bottom line is there was a tax issue that was nonrecurring," Moran said.
The company has emphasized that it's transitioning into a full service e-commerce platform.
CEO Mason on Wednesday noted that the company has opened a Silicon Valley office, in Palo Alto, Calif., and increased its "technology head count by more than four times." He said the company is seeking to invest to take advantage of "mobile and tablet" growth.
A possible valuation of $75 billion to $100 billion for the world’s largest social networking company encouraged some investors to lift valuation estimates on other companies in the sector, according to Sameet Sinha, an analyst at B. Riley & Co.
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