Groupon Sinks On International Deals Business

August 14th, 2012 by Trefis Team
-63.53%
Downside
11.51
Market
4.20
Trefis
GRPN: Groupon logo
GRPN
Groupon

Groupon‘s (NASDAQ:GRPN) stock price fell nearly 18 percent as Q2 revenues came in lower than expected at $568 million, up 53 percent y-o-y. Operating income was $46 million compared to a loss of $101 million last year. Gross billings, which is the total amount of cash collected from customers for the deals sold, net of estimated refunds and excluding taxes, increased 38 percent y-o-y to $1.29 billion in Q2 2012.

Though this is not all bad news, the stock took a beating as this is only about half the growth that the company saw in Q1. Q1 revenues grew nearly 90 percent y-o-y and gross billings nearly doubled. This drop in growth is expected as Groupon now sets aside a larger portion of gross billings as refunds due to a changed product mix which now includes higher end holiday deals and medical procedures. Weakness in the European markets, which is the major driver of its international business, created a drag on performance with over $70 million worth of impact on gross billings q-o-q. The company also generated $49 million in free cash flows for the quarter. [1]

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Check out our complete analysis of Groupon

Highlights and Outlook

North American revenues grew by 66 percent y-o-y and reached $260 million while marketing expenses dropped by nearly half y-o-y to $88 million. This bodes well for the deal maker as its customer acquisition costs have dropped significantly and revenues are growing. Mobile adoption is key for the growth of new business lines such as Groupon Now! and in July 2012 nearly a third of the North American transactions were completed on mobile devices which is a 35 percent increase y-o-y.

Groupon also released an outlook for Q3 2012 and expects revenue to be between $580 – $620 million, an increase of 35-44 percent y-o-y. Interestingly, the outlook assumes no further acquisitions or investments, which indicates it may push to grow organically.

We currently have a $14 Trefis price estimate for Groupon, which stands nearly 90% above its current market price.

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Notes:
  1. Q2 Earnings Transcript, www.seekingalpha.com, Aug 13 [↩]