Groupon stock is down after restating its fourth-quarter revenue estimates and increasing its net loss. Many analysts were quick to downgrade the stock.
Evercore Partners analyst Ken Sena thinks Groupon will continue to gain market share, but said investors won’t tolerate more missteps by the online daily-deal company.
Sena told CNBC Monday he was initially overbullish on Groupon stock, and thinks some of the company’s troubles are to be expected because of growing pains from expanding into new geographies.
But he said it is hard to justify the company’s valuation based on its current performance.
“The whole concept really comes down to Groupon being able to know its customers better and be able to serve more targeted offers for merchants,” he said.
Much of Groupon’s trouble came from its return policy. According to an audit of the company, it did not set aside enough money for customer refunds.
Many refunds are for Groupon’s higher-ticket items, such as travel packages, but Sena said Groupon takes a smaller cut of the money on these types of deals. “They need to make sure they’re reserving enough” for refunds, he said.
Groupon also faces competition from other services that help consumers find what they’re looking for, particularly Google and even Apple, he said.
“They’re still looking at major competitors in the local space who are well funded, who have mobile platforms,” Sena told CNBC.
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Evercore or an affiliate expects to receive or intends to seek compensation for investment banking services from Groupon within the next three months.