Groupon (NASDAQ:GRPN) has been in the news for all the wrong reasons lately. The company announced last week that the SEC review regarding refunds related to its new channels such as Groupon Getaways, more expensive deals, and Groupon Live had come to an end. However, this does not stop the regulator from seeking more disclosures or taking any action, if required, in the future. The company’s shares also took a beating and fell to an all-time low of $3.83 on concerns that Hurricane Sandy will lower the demand for daily deals.
The daily deals giant will announce its earnings for the third quarter of 2012 on November 8. We expect lower revenues due to higher refund amounts set aside by the company as it sells more expensive deals such as vacation packages and medical procedures. It is also diversifying into other businesses like setting up online presence for smaller businesses by providing services such as online booking websites and scheduling tools. Last quarter, it launched Groupon Payments and the Breadcrumb iPad point-of-sale (POS) system to help local businesses manage payments and sales. We expect these initiatives to help diversify the business away from the volatile daily deals market.
Groupon’s Credibility A Concern
Groupon is, by far, the largest player in the daily deals market, but its accounting practice has come into question time and again and has been one of the reasons for the drop in its stock price over the year. It recently appointed Brian Stevens, an ex KPMG LLP audit partner, as its new chief accounting officer. Mr. Stevens spent 16 years with KPMG prior to joining Groupon and is key in restoring investor confidence in Groupon’s filings.
New Business Growth Key For Q3
One of the biggest concerns for Groupon was rising marketing expenses that it has managed to rein in recently. Its marketing expenses dropped by nearly half y-o-y to $88 million in Q2. North American revenues grew by 66% y-o-y in Q2 to reach $260 million. In Q3, the company expects revenue of between $580 million and $620 million, an increase of 35-44% y-o-y.
This earnings release for Groupon may be a sign of things to come in 2013. While predominantly a daily deals site, Groupon has rolled out a number of promising tools and services targeted at local businesses. As announced, the company is offering services and platforms to become the ecosystem for local businesses. The payments services will help its customers process Groupons easily and receive payments quickly while the iPad based POS will enable merchants to set up payment and sales systems for much cheaper than traditional POS services.
While the traditional metrics for its core businesses are a primary concern, we will keep a close eye on Groupon’s long-term strategy and its new initiatives, which should drive growth for its daily deals offering, going forward.
We currently have a $8 Trefis price estimate for Groupon, which stands nearly 80% above its market price, which is hovering near its all-time low. 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 many clones.