Groupon Rockets Toward $14 Fair Value After Earnings With Focus On New Offerings

Groupon (NASDAQ:GRPN) reported its earnings for Q1 2012, and has made a great comeback with record revenue and operating profit of nearly $40 million. Its revenue increased nearly 90% year-over-year as its gross billings more than doubled during the quarter. The stock was hammered in the past couple of weeks, following a slew of scandals, accounting errors, SEC probes and shareholder lawsuits. However, the stock jumped nearly 40% since Groupon announced its earnings, which seems to have improved as it clamps down on expenses and focuses on growing its core deals business while exploiting growth opportunities in other channels. ^[1]

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North America featured deals business continues to see growth

Groupon’s daily deals business in North America accounts for a significant portion of its overall revenue. This quarter revenues grew 75% year-over-year, driven primarily by better personalized deals offered to consumers. It also served more than 100,000 unique merchants in the quarter, and ended the quarter with more than 36.9 million active customers. Its mobile offerings are also seeing significant traction, with many users buying deals through mobile.

Groupon’s new offerings gain traction

Groupon has continued to roll out new offerings for small businesses, including Groupon Now, Groupon Scheduler and Groupon Rewards, and aims to become the operating system for local commerce – a pretty lofty goal. It is also investing heavily in R&D, and leveraging technology to create SmartDeals, which offers personalized, targeted, more relevant deals to customers. Groupon Rewards has seen more than 30% eligible merchants sign up for the program, while around 2,500 merchants have signed up for Groupon Scheduler. Groupon Now is growing pretty quickly too, as it recently surpassed 1.5 million purchases. Groupon Getaways also grew close to 45% last quarter in terms of the number of deals offered.

Operating expenses need to come down further

Groupon has been relatively successful in bringing down its marketing expenses compared to last year, but its SG&A expenses have continued to mount, given its focus on rapid expansion. We expect it to eventually clamp down on its operating expenses. You can see how any change in its operating expenses impacts its overall value:

We currently have a $14 Trefis price estimate for Groupon, which stands near its market price, which has bounced back after reaching an all-time low earlier this month. Daily deals account for a major portion of its overall value. It competes primarily with LivingSocial backed by Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) Offers, Yelp (NYSE:YELP) and countless clones, but is looking to expand its offerings in other categories to diversify its revenue streams and drive its core daily deals business.

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1. GRPN Q1 2012 Earnings Call Transcript, Morningstar [↩]