(Reuters) - Shares of Groupon Inc (GRPN.O) slumped as much as 29 percent in heavy trading on Thursday after the daily deals company posted a surprise quarterly loss as it took a smaller cut of revenue from merchants offering holiday season discounts.
At least three brokerages downgraded the stock, while two others cut their stock price targets.
Groupon, a once-red-hot company that started in 2008 by marketing discounts on local services such as spas and restaurants to millions of online subscribers, has lost about three-quarters of its value since its IPO.
As investors questioned the company's business model, Groupon blamed a flagging European economy for much of its woes, saying the debt crisis in the region had sapped the demand for higher-priced deals.
Andrew Mason, Groupon's quirky, music-graduate co-founder and chief executive, has in particular drawn a lot of flak over the last year, but the company said in November it would retain him.
"Since the IPO, the Groupon story has largely been a comedy of errors, drawing into question the viability of the daily deal space," Piper Jaffray analyst Gene Munster said.
Groupon's shares were down 19 percent at $4.82 in midday trading, making it one of the top percentage losers on the Nasdaq. The stock was sold at $20 in the IPO in November 2011.
More than 72 million shares had traded by 12:45 pm ET, 3.5 times the stock's usual volume for a full day.
Thomson Reuters StarMine's intrinsic valuation model suggests Groupon should be trading at $3.65.
Investors have shunned the stock as competitors quickly copied its model and merchants tired of offering Groupon up to 40 percent of the revenue from each deal.
Rivals such as LivingSocial, Amazon.com (AMZN.O) and Google (GOOG.O) have undercut Groupon by offering participating merchants higher shares of deal revenue.
The cut in Groupon's "take rate", which was needed to revive flagging merchant interest in its internet offers, was, however, a blow to its fourth-quarter results.
In addition, Groupon forecast disappointing first-quarter sales due to a sharper-than-expected post-holiday slowdown in its new e-commerce business.
"While we believe Groupon is taking the right measures in lowering take rates ... in the near term we expect top- and bottom-line growth to be limited," Raymond James analyst Aaron Kessler said in a research note.
The analyst, who downgraded his rating on Groupon's stock to "underperform" from "outperform," expects the stock to remain under pressure until growth and margins recover, which he feels is unlikely before late 2013.
Groupon's cut from the daily deals it markets declined to about 35 percent in the fourth quarter.
Groupon's fourth-quarter revenue rose 30 percent to $638.3 million, but it slid to a loss of 1 cent per share excluding items, versus expectations for a slim profit of 3 cents a share.
It forecast first-quarter revenue of $560 million to $610 million, sharply below the average analyst estimate of $650 million, according by Thomson Reuters I/B/E/S.
Piper Jaffray's Munster, however, said that though the company has done a poor job of explaining fluctuations in the business model, daily deals was a viable business.
(Editing by Sreejiraj Eluvangal)