Shares of Groupon (NAS: GRPN) hit a new 52-week low today. The stock slid more than 5% to an all-time low on renewed fears about the company's ability to generate cash. Let's take a look at the challenges the daily deals site faces, and whether the fire-sale price tag creates a buying opportunity for investors.
A troubled existence
Groupon has been under fire (for good reason) since the company made its stock market debut last November, from pre-IPO investigations into false information in its S-1 to inflating its fourth-quarter revenue by $14.3 million. At this point, I think it's fair to say that this isn't just a case of Groupon working out the kinks of its novel business model.
The deal-of-the-day website is flooded with risk that many investors are tired of holding. In addition to its own internal issues, Groupon operates in a space that's crowded with hot-shot competitors such as Amazon (NAS: AMZN) and Microsoft (NAS: MSFT) . Amazon joined the party by investing $175 million in Groupon challenger LivingSocial.
Meanwhile, Microsoft started wheeling and dealing last year when it launched MSN offers. Clearly, this isn't a business that's difficult to enter. Groupon is down more than 60% year-to-date, which is decidedly lower than its rivals.
What's the deal?
Groupon continues to underperform the group. This is the second time this month that the stock has tumbled. On July 2 shares slid on news that Groupon Chairman Eric Lefkofsky was taking a step back from his role at the company. It's discouraging to see a Groupon co-founder turn his back on the company at such a critical time. In hindsight, Groupon shouldn't have turned down a possible takeover by Google (NAS: GOOG) for a rumored $5.3 billion.
However you cut it, things don't look good for the daily deals site. Concerns over the financial health of the business are nothing new. Not only do I think the current stock price is well deserved, but I also have little confidence in management's ability to turn things around. I stand by my underperform CAPScall on the stock.
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At the time thisarticle was published Fool contributor Tamara Rutter owns shares of Amazon and Microsoft. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Microsoft and Amazon.com. The Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, and Amazon.com. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy.
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