Groupon's shares experienced a significant drop of 27% on Wednesday.
Groupon (GRPN) saw a negative response from investors after releasing its quarterly results beyond market hours on Wednesday. The news, coupled with finance-related developments, left investors unsatisfied. As a result, the stock plummeted by a staggering 27% the following trading day, with the S&P 500 essentially remaining stable.
Revenue dipped, but profits surged in Q3
In Q3, Groupon recorded revenue of $114.5 million. This represented a 9% drop compared to the same period the previous year. The decline was primarily due to a 8% decrease in gross billings, which totaled slightly below $299 million. However, the company managed to turn a profit on the bottom line, reporting a GAAP profit of $13.9 million ($0.33 per share) in Q3. This was a significant shift from the substantial loss of over $41 million reported in Q3 2023.
As per Zacks data, Groupon outperformed analysts' expectations of a loss of $0.25 per share. The company, however, fell short by almost 4% of the consensus revenue forecast.
In its earnings statement, Groupon attributed the revenue drop to an increase in local voucher redemption rates in its U.S. core business. As for the international segment, the company was impacted by its decision to exit the local deals segment in Italy.
Time for a financial makeover
While the unexpected profit turnaround was a positive development, the substantial revenue decrease was not. This was further compounded by Groupon's announcement of restructuring one of its existing financing agreements.
Groupon has reached an agreement with unnamed holders of its 1.125% convertible senior notes maturing in 2026. These holders will exchange their notes for new notes at a 6.25% rate maturing in 2027. The total principal amount of both the exchanged notes and the new securities amounts to nearly $176.3 million. Certain holders of the existing notes have also agreed to sell an aggregate $21 million worth of those notes for a collective gross cash payment of $20 million.
Following the profit surge in Q3, Groupon might consider reinvesting some of the money into strategic initiatives to further boost its growth. However, the significant drop in revenue could pose a challenge, as investing in finance requires adequate capital.
Groupon's decision to restructure its financing agreement could impact future investing opportunities, as the company may need to allocate more resources towards repaying its debts. This could limit its capacity for future financial ventures.
