February 28, 2013 / 4:56 PM / 4 years ago

Groupon shares tumble as shrinking margins lead to loss

Feb 28 (Reuters) - Shares of Groupon Inc slumped as much as 29 percent 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.

Groupon's shares were down 22 percent at $4.68 in late morning trading, making it one of the top percentage losers on the Nasdaq. The stock was sold in the IPO at $20 in November 2011.

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.

The cut in its "take rate", which was needed to revive flagging merchant interest in its internet offers, was a blow to 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.

Thomson Reuters StarMine's intrinsic valuation model suggests Groupon should be trading at $3.65. (Reporting by Sayantani Ghosh in Bangalore; Editing by Sreejiraj Eluvangal)

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