(By Louis Basenese) Daily deal juggernaut, Groupon (Nasdaq: GRPN), has been getting clobbered lately, which I predicted repeatedly (see here, here, here and here).
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Yet the selloff – from a post-IPO high above $31 to a recent low around $11 – has convinced some analysts that the stock is suddenly a compelling investment.
On Monday, Evercore analyst, Ken Sena, raised his rating on Groupon to "Overweight" from "Equal Weight." He now considers it an "attractive entry point."
Come again, Ken?
A falling stock price – even a dramatic 64.6% selloff like in Groupon's case – doesn't make a company suddenly attractive. Not unless the underlying business is strong. And when it comes to Groupon, its business hardly qualifies as such.
11 Reasons Groupon is a Goner
Groupon's list of unattractive fundamentals is long. Really long. So I'm going to just jump right in…
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1. Less Than Reliable Accounting
Before Groupon went public in November 2011, the SEC clamped down on its use of misleading accounting metrics. Specifically, consolidated segment-operating income (CSOI).
Since that time, the company's restated earnings. And revealed "a material weakness" in accounting controls, prompting another SEC investigation.
I might be willing to overlook one accounting "snafu." But three? Not a chance.
2. Obscene Marketing Expenses
I've noted before that Groupon's business requires it to spend on marketing to acquire new subscribers. But it's getting ridiculous.
In 2011, Groupon spent $768.5 million on marketing, up 164% from 2010. That's equivalent to 48% of total revenue.
In comparison, OpenTable (Nasdaq: OPEN), which also boasts a subscriber-based model, only spent 20.6% of revenue on marketing last year.
3. Uncomfortably High Overhead
As a result of ramping up its sales force from 128 people (March 2010) to 5,196 (December 2011), Groupon carries a hefty overhead burden.