Groupon (NASDAQ:GRPN) is expected to report its earnings for the fourth quarter of 2016 on Wednesday, February 15th. In the first three quarters of last year, Groupon’s revenues remained flat at $2.2 billion driven by a 6% increase in North American gross billings and a 5% increase in North American sales. The company’s strategy to focus on the North American market and move away from certain low-margin goods businesses seems to be bearing fruit, and we can expect Groupon to further consolidate this year.
In the upcoming Q4 results, overall sales are expected to remain flat, owing to improving North American sales but likely to be offset by declining international gross billings. Groupon is expected to report revenues of around $914 million and earnings of $0.03 per share in Q4 2016, per consensus estimates compiled by Reuters.Owing to better than expected performance in North America in the first three quarters, both in terms of gross billings and customers gained, Groupon revised its full year revenue and adjusted EBITDA guidance. This was the primary reason for improvement in investor confidence in the company last year. For full year 2016, Groupon expects revenues of $3.075-$3.15 billion and adjusted EBITDA to range between $150 million and $165 million.
What To Watch Out For:
- North America Revenues
North America, which has been the primary area of focus for the company, reported revenues of over $1.5 million in the first three quarters, an increase of 5% on a year-over-year basis. Gross billings for the region improved by 6% to $2.8 billion while gross profits increased 9% to $635 million in the same period. The renewed focus on North America led to an addition of 1.9 million customers during the first nine months of 2016. For Q4 2016, we expect North America revenue to report growth in mid-single digits even as international sales continue to decline.
- Marketing Expenses
- How Did Groupon’s Gross Billings & Gross Profit Per Customer Vary Across Regions in 2016?
- How Did Groupon’s Take Rate Trend Over Different Geographies In 2016?
- Groupon’s Stock Soars As Q4 Earnings Beat Estimates On Solid North America Performance
- Groupon: 2016 In Review
- How Does Groupon’s Gross Billings Per Customer Vary Across Regions?
- Groupon: Evaluating Rich Williams’ First Year At The Helm
In the first three quarters of 2016, Groupon’s revenues were flat year over year, but its operating loss increased to $117 million owing to significantly higher marketing expenses. Considering the company is moving away from lower-margin businesses in international markets, we assume that most of its marketing expenses are spent in the North America and EMEA regions. Incorporating this in our calculations, the company’s marketing expenses increased from 8% of North America plus EMEA revenues in the first half of 2015 to 9.5% in the second half of 2015, and to 13% of revenues in the third quarter of 2016. We will keep an eye on this metric in the upcoming fourth quarter results.
- Active Users
Groupon’s growing marketing spend helped increase its active users from 40.2 million at the end of June 2015 to 44.5 million at the end of September 2016.
The effectiveness of Groupon’s marketing expenses can be gauged from the fact that the marketing spend per new user per month declined from over $30.20 in the second half of 2015 to $16.30 in the third quarter of 2016. This data suggests that Groupon’s current focus seems to be on increasing its active customer base rather than improving individual customer sales. It will be interesting to see how this metric changed in the upcoming fourth quarter results.