Shares of beleaguered deals giant Groupon (NASDAQ: GRPN) tumbled 22% after the company issued worst-than-expected first-quarter guidance. While citing plans to spend more to advertise its online marketplace, management expects a loss of 2 cents to 4 cents per share for the current quarter, far below analysts’ estimates.
The good news is, the company did beat earnings estimates by 2 cents, posting adjusted earnings of 4 cents per share. This is while revenue rose slightly above 20% to $768.4 million from the previous year, which beat estimates of $718 million by 7%.
Analysts worry that Groupon lacks the ability to create new markets. The concern is that the company can only operate and service existing markets. This makes Groupon vulnerable not only to macro weakness, but also to potential competition from the like of Google (NASDAQ: $GOOG), Amazon (NASDAQ: $AMZN) and Facebook (NASDAQ: $FB).
It remains to be seen to what extent these shares recover next week. This is assuming that investors will use this weekend to process what was — in my opinion — decent fourth-quarter results. For now, it’s best to stay away from this stock until the dusts settle.