Groupon (NASDAQ: GRPN) Stock is a Double Narrative Loser

Shares of Groupon NASDAQ: GRPN got pumped up into June 10, 2020. This was the payable date of the 20-for-1 reverse stock split. Shares collapsed promptly from that day forward only to coil into the Q1 2020 earnings and collapse again. Shares collapsed twice on sell-the-news reactions, initially on the split and then earnings (or lack thereof). Investors should be aware that reverse stock splits almost never end well. Groupon is a pandemic loser since its small business clientele are experiencing disruptions due to stay-at-home mandates. It’s also a post-pandemic loser due to the flawed business model of conditioning customers to engage businesses only when Groupon discounts are available and avoid paying regular prices. The model has very low barriers to entry and competition from every angle. Investors should consider unwinding on price rallies as this former dollar stock continues to prove itself a dual narrative loser.

Q1 FY 2020 Earnings Results

On June 16, 2020, Groupon reported its Q1 2020 earnings for the quarter ending March 2020. Earnings came in at (-$1.63) loss per share versus consensus analyst estimates of (-$2.16), a $0.53 beat. Revenues dropped (-35%) year-over-year (YoY) to $374.15 million but still beat analyst estimates of $351.70 million. The Company reported multi-phase restructuring is underway since late March 2020 including lower headcounts, incremental in-year cost savings, and liquidity preservation measures. Groupon expects to see up to $225 million in annualized cost-savings by 2021 in its “multi-phased” restructuring plan composed of furloughs and layoffs. Groupon is “encouraged” by recent performance trends that indicate the business is recovering quicker than expected for Q2 2020. Keep in mind that earnings per share (EPS) reporting was “retrospectively adjusted to reflect the reverse stock split of the Company’s common stock at a ratio of 1-for-20, which became effective June 10, 2020.” Investors should focus on the actual operating losses, rather than the EPS due to the split. In dollar terms, the Company lost (-$210.9) million for Q1 2020 compared to (-$41.2) million YoY in Q1 2020, which included (-$109.5) million and (-$22.4) million in goodwill and long-lived impairment charges. Net losses grew five-fold in Q1 2020 YoY. It’s hard to see anything positive about these numbers, despite the so-called $0.53 per share beat.

Reverse Splits Rarely End Well

Traditionally, well-performing companies with appreciating stock prices will perform stock splits. On the flip side, poorly performing companies attempting to get some liquidity and perform some financial engineering will perform reverse splits. Investors should be cautious of companies performing reverse splits.   Groupon implemented a 1-to-20 reverse stock split on June 10, 2020. Shares opened at $32.40 indicated $1.62 pre-split, falling as low as and closing the day at $27.80, representing $1.39 pre-split, a (-14%) drop on the first day.

Double Narrative Loser

Groupon clearly is a pandemic loser as indicated by operating losses that grew five-fold in Q1 2020 YoY over Q1 2019. Since they derive a large chunk of revenues from small businesses, the restart narrative may initially appear to benefit the Company. However, small businesses that have been shut down during isolation mandates would think twice about further discounting products and services as loss leaders through Groupon to get the limited foot traffic in the doors as mandated by regional jurisdictions. While stay-at-home mandates get lifted, social distancing policies will continue to remain in effect for the foreseeable future which results in capacity limitations of up to 50% for stores and restaurants. Groupon’s model is flawed as numerous businesses have identified customers that only engage when Groupon coupons are available. They are conditioned only to pay a discounted price and shun paying full price, which is the opposite outcome that businesses originally anticipated to get new customers in the door to stay. It’s comical how Groupon attempts to give the façade of sophisticated restructuring which is mostly layoffs and furloughs. It’s typical smoke and mirrors attempt to improve the perception of a bulk discounting business model with tremendous competition and few barriers to entry. Reverse splits are usually a sign of desperation and a nail in the coffin for shareholders. From local mailers to Yelp NASDAQ: YELP , the competition is endless. Groupon investors may want to unwind their positions while shares are still trading on hubris and savvy experienced traders may consider playing the downward spiral.

GRPN Price Trajectories  

Using the rifle charts on a monthly, weekly and daily time frame provides a broader view of the landscape for GRPN stock. Since the charts are priced on the reverse split values, it can distort the historical prices. Keep in mind, shares were $1.62 pre- reverse-split, so it didn’t take much to run up the shares to get the highest price on the execution date June 10, 2020. The monthly rifle chart triggered a market structure low (MSL) above $29.72 Fibonacci (fib) level. However, that level lasted one-day when the reverse split went active at $32.40 and promptly collapsed. The weekly rifle chart has a mini pup, but shares collapsed straight through its weekly 5-period moving average (MA) at $24.71 and 15-period MA at $21.30. If the weekly stochastic crosses down as the daily forms an inverse pup, the downside trajectories sit at the $19.00 fib, $16.78 fib and $15.40 fib. Since the daily stochastic is a low-band, it has the potential to coil back up and attempt an upside oscillation towards the $23.20 to $25.38 daily 5-pd MA and 15-pd MA levels, respectively. These would be “gift” levels for longs to unwind and nimble traders to consider playing the short side. Always be aware of the potential for a short squeeze since the float has thinned out tremendously.