Coupons.com Shares Have a 25.9% Meltdown

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Coupons.com Shares Have a 25.9% Meltdown

By Richard Robinson, Ph.D., Equities Analyst

On a day in which the Nasdaq rose more than 1%, shareholders of Coupons.com (COUP) must have thought the sky was falling on Tuesday.

Coupons.com managed to shed more than $300 million in market capitalization by Tuesday’s close.

And we have two crushing factors to thank for the move . . .

You see, when a freak day like this occurs, investors want to know the “why” behind it and how to continue making more sound investment decisions moving forward.

Before we expose the two culprits, take a look at the chart below showing the precipitous drop of COUP, which sat near its 52-week low of $9.24, reached on August 22, 2014.

As you can see, the shares of the California coupon supplier closed the trading day at $10.75, or down more than 25.9% on very heavy volume. Tuesday’s volume was nearly 18 times the normal trading volume for the stock, with more than 13.8 million shares finding new owners.

Now, the catalyst for Tuesday’s selloff was two-fold . . .

Instigator #1: Mixed Q4 Results. Coupons.com reported total revenue for Q4 2014 of $60 million, an increase of 14% over the $52.6 million reported in the same quarter a year ago.

The problem is, analysts expected the coupon company to post revenue of $63 million – resulting in a 4.7% revenue miss.

That’s the first time since its IPO that COUP missed its revenue estimates – a bad omen for a company that hasn’t been profitable since its founding in 1998.

The company saw its net income decline more than 213.2%, falling from $1.5 million in Q4 2013 to $1.7 million in its most recent quarter.

This resulted in a quarterly loss of $0.02 per diluted share, and another miss against analyst expectations of a $0.04-per-share gain.

Instigator #2: Lower 2015 Guidance. As if the mixed quarterly results weren’t enough bad news for shareholders, the company announced substantially lower FY 2015 guidance, as well.

For Q1 2015, the company now expects total revenue to be in the range of $52 million to $54 million, a significant shortfall from the $66 million expected by analysts.

Adjusted EBITDA is now anticipated to be in the range of $1 million to $3 million for the quarter.

Full-year guidance also took a hit, with total revenue assumptions to be in the range of $275 million to $290 million. Analysts were forecasting full-year revenue for the company of $295.5 million.

Time to Clip This Coupon?

Goldman Sachs (GS) says the couponing industry is becoming increasingly competitive, and it will see compressed margins with the continued shift to digital coupons.

This likely spells doom for COUP, which will continue to experience deceleration in its growth rate in the future – resulting in a significant contraction of the company’s multiple.

Expect to see the stock trade at two times FY 2015 revenue, down from approximately seven times FY 2015 revenue prior to Tuesday’s meltdown.

This means the stock has a real value of $6, at best. That gives the stock room to fall another 44% before it hits anything near a bottom.

But beware, technical traders are watching the Relative Strength Index (RSI) for COUP, which hit a reading of 23.1 (oversold) on Tuesday.

Expect to see a technical dead-cat bounce before the stock resumes its descent.

Good investing,

Richard Robinson

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By Richard Robinson