Flash sales and daily deals may just turn out to be less fun than everyone thought they'd be.
Groupon Inc. tumbled to a record low after Evercore Partners Inc. downgraded shares of the daily-deal website, citing a potential for billings to decline.
The shares retreated 5 percent to $4.75 at the close in New York, the lowest price since an initial public offering in November. The stock has lost 76 percent since the IPO.
The Chicago-based company makes money by selling discounts — known as Groupons — from businesses such as restaurants and nail salons. It then splits the revenue with the businesses. Groupon earlier this week reported second-quarter revenue that missed estimates as economic weakness in Europe curbed online coupon sales.
“We see potential for future cash burn assuming billings declines persist as the deteriorating impact of ‘changes in accounts payable’ could be enough to offset growth in income earned,” said Ken Sena, an analyst at Evercore in New York, in a research report. He downgraded the shares to underweight and cut the price estimate to $3 from $6.50.
International revenue, which makes up more than half of the total, was reduced by currency weakness and a lack of demand for big-ticket items in Europe, Groupon executives said on Aug. 13 when the company reported second-quarter earnings.
A larger portion of sales came from Groupon Goods, an e- commerce site for marked-down products. The service made up most of the company’s $65.4 million in direct revenue, which more than tripled from $19.2 million in the first quarter, Chief Financial Officer Jason Child said on a conference call with analysts.
The economic climate in Europe, as well as anticipated increases in marketing expenses needed to attract new customers, are depressing shares, Sameet Sinha, a San Francisco-based analyst at B Riley & Co., said in an interview.
“Growth is contracting and the new Groupon Goods business has very low margins,” Sinha said.
With assistance from Beth Mellor in New York. Editors: Lisa Rapaport, Reed Stevenson.
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