RetailMeNot (SALE) Correctly Punished By Market

August 5, 2014 • Top News • Tags:

RetailMeNot is down over 25% after reporting Q2 results that were not able to meet expectations. Though the digital coupon marketplace actually beat GAAP earnings, top line came in lower than expected and guidance was revised downwards.

SALE q2 and guidance

 

There was a confusion that mixed up the non-GAAP & GAAP EPS results, but even without that mix up, the company had a disappointing Q2. Forecast revenue for the next quarter and full year were cut indicating that RetailMeNot’s growth is slowing. Additionally, the company expects lower net revenue per visit during 2H 2014.

Search Engine Reliance

Overall, organic search represented 64% of total traffic for RetailMeNot which shows the reliance that search engine results have on company operations. For example, Google’s algorithm change caught RetailMeNot off guard as the company’s page ranking and organic search traffic were disrupted. The company has moved away from this reliance by launching a mobile app, but it operated in a business where search engines have a lot of influence.

Conclusion

SALE is trading at a trailing P/E of 44x and P/S ratio of 4x. Investors are paying up for a company that is showing slowing growth and many headwinds. On the other hand, RetailMeNot has about $214M in cash balance (one fifth of its value), is profitable and provides positive cash flows. In a highly competitive digital offer marketplace, RetailMeNot needs to display some sort of competitive advantage before warranting the valuation it currently sports.

RetailMeNot After Drop
Are you a buyer of SALE after the earnings drop

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