Barclays Downgrade Extends Groupon's Woes

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on August 21 2012 10:42 AM
People enter and leave Groupon Inc corporate office and headquarters in Chicago
People enter and leave Groupon Inc corporate office and headquarters in Chicago, Illinois, November 4, 2011. REUTERS

The daily deals website Groupon Inc. (Nasdaq: GRPN) suffered another blow Tuesday as Barclays Capital (London: BARC) downgraded the company, citing a move towards lower margin sales.

Late last year, Chicago-based Groupon began buying products in bulk and selling them for a profit through its new "Groupon Goods" division, a shift from its core business of offering coupons for other retailers and services. The new service might not be as profitable, said analysts.

"The sale of products or "Groupon Goods", which practically didn't exist two quarters ago and represented an immaterial amount of first-quarter sales, represented the vast majority of incremental sales growth in the second quarter," Barclays analyst Mark May said, according to Reuters. Barclays downgraded company shares from Overweight to Underweight and cut its price target from $15 to $4.

Last week, Groupon reported that gross billings fell to $1.29 billion in the quarter ended June 31, down from $1.35 billion in the prior quarter. It forecast adjusted earnings of $45 million to $65 million for the current quarter, missing the $80 million forecast by analysts surveyed by FactSet. The company blamed turmoil in Europe and a strong dollar. It earns the majority of its revenue outside the U.S.

Four early investors, including tech veteran Marc Andreessen, have also sold their stakes in Groupon, according to Wall Street Journal, citing the moves as a falling confidence in the company.

Shares of Groupon were down 3.65 percent to $4.48 in Tuesday morning trading. The stock has fallen around 40 percent since second quarter earnings were announced last week.

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