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Groupon Plunges: What Wall Street's Thinking

Updated from 11:36 a.m. to include information from Sterne Agee analyst.

NEW YORK (TheStreet) -- Groupon (GRPN - Get Report) shares plunged after the online goods company reported first-quarter earnings guidance that missed Wall Street estimates, causing some concern that the company is going in the wrong direction.

For the first-quarter, Chicago-based Groupon expects to lose between 2 cents and 4 cents a share, generating revenue between $710 million and $760 million. Analysts surveyed by Thomson Reuters were looking for the company to earn 6 cents per share on $681.2 million in revenue for the quarter.

Shares were down 20.6% to $8.16 in mid-Friday trade.

The company has been transitioning away from its previous business model, third-party sales, to generate more revenue from Groupon Direct, putting it in competition with the likes of Amazon (AMZN), eBay (EBAY) and others. Groupon Direct has significantly lower gross margins than the third-party business, but revenue has slowed significantly for that unit in the past few quarters.

For the fourth-quarter, Groupon earned 4 cents a share, beating analysts' estimates of 2 cents a share. The online deal company recorded revenue of $768 million for the quarter, beating analyst expectations of $718 million from those surveyed by Thomson Reuters.

GRPN ChartGRPN data by YCharts

Wall Street analysts tried to put a good face on the quarter, but the guidance concerned them. Here's what a few of them had to say.

UBS analyst Eric Sheridan (Neutral, $11 PT)

"Groupon guided revenue for Q1 2014 to a range of $710mm-$760mm (vs. our current estimate of $691mm and Street estimate of $669mm). Adjusted EBITDA (no longer emphasizing CSOI) is expected to be between $20mm-40mm (vs. our current estimate of $99.8mm and Street estimate of $97.1mm). Ticket Monster & ideeli are expected to contribute ~$50mm in Q1 revenue, but have a ~$20mm negative impact on Adjusted EBITDA (integration and investment behind these businesses). Additionally, Groupon plans to make ~$25mm in incremental investments (marketing & growth) in Q1 2014."

Deutsche Bank analyst Ross Sandler (Buy, $12 PT)

"Groupon reported billings, gross profit and EBITDA that were 1%, 10% and 4% below our estimates, and guided core EBITDA in 2014 (ex-acquisitions/ex-marketing) ~$20m below our previous estimate. The Jeff Holden departure combined with mixed fundies in 4Q and acquisition dilution are blurring up the bull case, but we see some positives here. Our thesis has been based on the transition to pull/mobile driving up growth rates, and the key areas showing traction in 4Q were EMEA Local and Goods billings, offset by ROW and NA Local weakness.

At $9 after-hours and 14x EBITDA, we believe the choppiness in 4Q is largely priced in. We are trimming 2014 GP and EBITDA by 12% and 22%, and reducing our price target to $12, and are sticking with our Buy based on longer term turn-around potential."

Bank of America Merrill Lynch analyst Paul Bieber (Neutral, $11 PT)

"Groupon remains a company in transition, moving from daily deal company to a destination marketplace with very high mobile exposure. While the company has a big potential opportunity ahead, we think a turnaround may be choppy and could take longer than expected by the Street. We are lowering our PO to $11 (from $13), which is based on
16x EBITDA plus ~$1.00 cash per share and maintain our Neutral rating."

Sterne Agee analyst Arvind Bhatia (Buy, $12 PT)

"4Q results were another reminder that turnarounds take time. Results were mixed as gross billings/revenue exceeded but operating profits were lower than expected. "Local" growth decelerated due to the ongoing shift to the "Pull" marketplace and tough comparisons. EMEA performed above expectations. Management's two key focus areas in 2014 will be 1) driving billings growth through increased marketing investments, and 2) operational improvements in the "Rest of the World" (RoW) segment."

--Written by Chris Ciaccia in New York

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