Weekly Internet Notes: Groupon, Zynga and Baidu

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Groupon (NASDAQ:GRPN), Zynga (NASDAQ:ZNGA), and Baidu (NASDAQ:BIDU) saw significant developments over the past week. Groupon exited four key Nordic markets, amidst its ongoing efforts to trim its international portfolio, while Baidu announced its entry into the online financial services market. This will see the Chinese online search giant follow other heavyweights, including Tencent and Alibaba, in setting up an online bank providing loans and investment products to small and medium-sized businesses in China. In addition, Zynga released a new game in the Slots category, based on a popular film and novel. Below are some details.

Groupon

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Bad news continues for Groupon, whose stock has dipped by over 20% during the past month, on its Q3 earnings miss and weak future outlook. Recently, the company announced its exit from Nordic markets including Sweden, Denmark, Norway and Finland as it continues to restructure its operations globally. [1] This follows its earlier move to exit seven markets and lay off 1,100 positions across international and customer service operations in September. We expect more such restructuring moves to take place in the coming quarters, as Groupon aims to exit less profitable opportunities. We expect this decision to weigh on Groupon’s top line in the EMEA region, where gross billings fell by 1% (in FX-neutral terms) during the third quarter. Nonetheless, we expect this to be a positive move overall, as the company needs to strengthen its focus on key markets, and improve on its product portfolio to boost demand.

We estimate Groupon’s revenues and non-GAAP diluted EPS in 2015 at $3.1 billion and $0.09, respectively. We maintain a $4.20 price estimate for Groupon’s shares, which is significantly ahead of the current market price.

Zynga

Zynga recently boosted its presence in the social-casino market, with the launch of Princess Bride Slots (based on the popular novel and film). ((Zynga targets its core demographic with Princess Bride Slots, Venture Beat, November 19, 2015)) Slots represents a rapidly growing category for Zynga, as the company’s core mobile franchises – Slots, Words With Friends, and Poker – saw annual bookings rise of 61% during the most recent quarterly results. With Zynga delaying the launch of Dawn of Titans and CSR2 into 2016, we expect its near-term outlook to remain soft.

We forecast Zynga’s revenue in 2015 at $764 million. We maintain a $2.70 price estimate for Zynga’s shares, which is marginally above the current market price.

Baidu

In another major development over the past week, Baidu and China Citic Bank partnered to set up an online bank, called ‘Baixin Bank’, that will provide loans and other investment products. [2] Baidu is a relative late-comer to the online financial services sector, as rivals including Alibaba and Tencent have already set up online banks. While this joint venture is currently pending approval, we believe once operational, this partnership could open another significant revenue stream for the company. Baidu could leverage its over-640 million mobile search monthly active users and over-600,000 active online marketing customers to fuel this financial services business.

We forecast Baidu’s revenue at $10.7 billion and its GAAP diluted EPS at $5.91 for 2015. Our $209 price estimate for the company’s stock is marginally above the current market price.

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Notes:
  1. Groupon Exits Sweden, Denmark, Norway And Finland In Ongoing Global Retreat, TechCrunch, Nov 17, 2015 []
  2. Baidu, Citic Bank Plan to Set Up Direct Bank, Wall Street Journal, Nov 17, 2015 []