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Groupon misses estimates this quarter and posts a net loss despite rise in sales

Skift Take

While there does appear to be an uptick in some of Groupon’s business, its troubled history with math means that there’s no telling what quarterly reports are really saying.

— Jason Clampet

Groupon Inc., the largest daily-deal website, reported third-quarter sales that missed estimates as sales of coupons overseas declined from the previous quarter.

The net loss was $2.98 million, the Chicago-based company said today in a statement. Sales rose 32 percent to $568.6 million, missing the $591 million average analyst estimate, according to data compiled by Bloomberg.

Groupon, which has lost 80 percent of its value since holding an initial public offering a year ago, has struggled to grow abroad, where it makes nearly half its revenue. While the company has taken steps, such as adding new management, to bolster its business in Europe, currency movements and weak demand for online coupons outside the U.S. continue to pose challenges, said Sameet Sinha, an analyst at B. Riley & Co. in San Francisco.

“Some people have expected a quick turnaround in Europe,” said Sinha, who has a neutral rating on the stock. “What they don’t understand is it’s a huge task.”

Groupon shares fell as much as 18 percent in extended trading to $3.20 following the report. Earlier, the stock advanced 4.3 percent to $3.92 at the close in New York.

International revenue was $276.9 million, or 49 percent of total sales. That was down 10 percent from the second quarter of this year, when sales outside the U.S. were $308.2 million.

Job cuts

Groupon Goods, an e-commerce site started last year, reached a projected $500 million in annual sales, the company said. While the service is growing more rapidly than the daily deals business, it has lower profit margins, Jason Child, chief financial officer, said in a telephone interview.

“Customers have embraced that product line since we launched it a little over a year ago, definitely a little faster than we expected,” Child said. “That is leading to margin reductions.”

The company makes money by offering discounts — known as Groupons — from businesses such as restaurants and nail salons. It then splits the revenue with the businesses.

Profit margins will come under further pressure as the company seeks to add thousands of merchants by offering them a greater share of revenue from coupons, Child said.

Groupon said today it’s eliminating 80 sales jobs as it automates its sales and marketing operations. The company has more than 12,800 employees.

“Groupon announced several months ago it would be using technology to increase productivity through automation,” Julie Mossler, a spokeswoman for Groupon, said in an e-mailed statement before the earnings announcement. “We will always aim to optimize business operations wherever opportunities are identified.”

Online coupons

Fourth-quarter revenue will be $625 million to $675 million, Groupon said in the statement. That compares with an average analyst estimate of $637 million.

Groupon last month unveiled an application for Apple Inc.’s iPad that lets merchants track purchases. The app works in conjunction with Groupon Payments, a credit card-reading service designed to compete with EBay Inc.’s PayPal and Square Inc.

LivingSocial Inc., the top rival to Groupon, had a net loss of about $566 million in the third quarter, partly because of an impairment charge on acquisitions, Chief Executive Officer Tim O’Shaughnessy told staff in a memo last month.

Editors: Reed Stevenson, Ben Livesey. To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net. To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

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