Groupon's Long, Painful Road to Recovery

Groupon Inc.'s(GRPN) transformation into a company that isn’t solely dependent upon emailed daily-deal offers is taking a lot longer than Wall Street anticipated.

The Chicago company late Tuesday reported its eighth straight quarterly loss, posting results that fell short of analysts’ expectations. The stock dropped as much as 20% on Tuesday to $5.68, its lowest level since early June. Shares are down more than 50% this year.

The guts of the quarterly report spooked investors. Groupon reported smaller commissions, a new credit line and disappointing guidance. It has diversified by offering the sale of physical goods and longer-lasting discounts through mobile phones, but the moves have yet to shine through significantly on the bottom line.

Wall Street is getting restless.

“We are not yet convinced that Groupon is on a consistent path towards growth and profitability,” said Edward Woo, an analyst at Ascendiant Capital Markets, which has a sell rating and $5 price target on Groupon. The share price “is likely to remain volatile and weak until it demonstrates it can grow both consistently.”

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Groupon counters that it’s efforts to diversify will take time. In the second quarter, the company introduced a tablet-computer-based cash-register system called Gnome, with the goal of taking on Square Inc., PayPal and others.

“We’re a business in transformation,” Groupon CEO Eric Lefkofsky told WSJ’s Greg Bensigner. “We’re still in investment mode. We believe we can accelerate our business.”

But analysts aren’t so sure. Jefferies describes the company’s pace of execution as “somewhat underwhelming.” Sterne Agee says progress remains slow and Wunderlich Securities finds it difficult to see Groupon rebounding in the next quarter or two.

“We question whether the company can successfully manage the transition from deals site to retailer and now to ‘commerce partner,’” Evercore analyst Ken Sena wrote to clients.

Groupon shares are down more than 70% from when the company went public in November 2011 at a $20 IPO price. Judging by the caution coming from analysts, the company has a long way to go to return to that level.

–Greg Bensinger contributed to this report.