Groupon shares lost some 30 percent of their value Wednesday, after reporting third-quarter results that came with a cavalcade of bad news, including a revenue miss, disappointing guidance and a flat customer base.
Oh, and the company continues to lose money — logging a loss of $27.6 million in the quarter, as its marketing expenses plus selling, general and administrative costs eclipse its gross profit.
Investors shouldn't expect that to reverse anytime soon, as the company plans to double its marketing spending investment in an apparent effort to turn the numbers around.
This as Rich Williams, who was promoted to the company's COO position just five months ago, is named CEO.
"Obviously this is not your fairy tale first day on the job," Williams understated in a Wednesday morning interview on CNBC.
But the biggest concern among analysts is that marketing is not the answer.
Post-earnings, Piper Jaffray analyst Gene Munster downgraded the stock from "overweight" to "neutral," writing: "At the core of our downgrade is a belief that Groupon should be more focused at improving the product and less focused on marketing. We understand the company's investment in marketing approach but do not believe it solves the company's most compelling challenge, which is building a more compelling product that virally attracts users."
And with that, the analyst chopped off two-thirds of his price target.
Similarly, Sterne Agee CRT analyst Arvind Bhatia cut his rating to "neutral" given his expectation that the strategy shift "will take time to play out."
Even the company's own materials do not make marketing sound like a particularly thrilling plan. While Groupon's North American marketing expense of $106 million in 2012 apparently led to $711 million in gross profit, the $134 million in marketing spend already logged in 2015 has only contributed $139 million in estimated gross profit. This according to a slide attending the company's earnings call with the mild title: "The ROI [or return on investment] of New Marketing Spend has Held up Since 2010."
Oddly, the company subsequently presents some of the same information in a scaleless, martini-glass format:
Cocktails aside, the company is attempting to present sufficient evidence that marketing remains profitable. "The marketing math just works for us," Williams said in the CNBC interview.
This issue is that investors and analysts don't necessarily want to see this company — which has had its stock fall more than 60 percent in the past year — play small ball.
Still, for the bulls, the marketing Groupon intends to do is the transformative sort that will turn the company around.
"Groupon's challenge — well, one of them — is that they need to re-educate consumers on what they're trying to do and what they're trying to become. They're evolving from a deals-in-your-inbox service to more of a real-time market place. And what I expect with this marketing is that they're trying to hammer consumers over the head with this idea that this is where you can go and transact in real time," said Tom White, who covers the stock for Macquarie.
"It's sort of the only thing they can do," added the analyst, who has an "outperform" rating on the stock and a $3.50 target (which he just cut from $6.25). Marketing is "the last really big area of investment that they need to make, and they sort of have to do it."
"We don't expect the stock to do much for a couple quarters until we see marketing spend impact the top line," White said, echoing his less bullish colleagues. But given Groupon's low levels as of Wednesday, "you've got a bit of a buffer."