Groupon’s Stock Rallies On The Back Of Solid Results, Positive Outlook

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Groupon

Groupon (NASDAQ:GRPN) announced its second quarter results on Wednesday, August 2, reporting an 8% year-over-year decline in net revenue to $663 million. In recent quarters, the company has exited certain low-performing international markets, due to which it reported a decline in revenues. While revenues were down, the company reported a 4% increase in gross profit to $328 million.

We are in the process of revising our $4 price estimate for Groupon, which is slightly lower than the current market price. After a strong set of quarterly results and positive guidance for Q3, Groupon’s stock price rallied almost 10% to $4.30 on Wednesday.

See our complete analysis for Groupon here

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June Quarter Highlights

In recent years, Groupon’s international operations have weighed on the company’s profits considerably due to higher marketing and promotion expenses. Moreover, high customer acquisition costs have not translated into high returns for Groupon, with gross billings per customer remaining low in regions outside North America and western Europe. As a result, Groupon’s management has made tough decisions to exit many markets over the last few quarters, thereby reducing its potential addressable market size. Subsequently, Groupon’s net revenues have fallen on a year-over-year basis, as shown below. Groupon’s management mentioned that the declining trend in revenues is expected to continue in the near term.

On the other hand, Groupon’s gross profit increased 4% over the year-ago period to $328 million. As a result, the company’s gross profit margin expanded by almost 6 percentage points, as shown above. This resulted in Groupon’s operating loss (GAAP) falling to around $7 million as compared to almost $40 million in the comparable prior year period. Similarly, GAAP net loss and loss per share reduced from Q2’16 levels.

Growth Metrics

The total number of active users on a trailing twelve month (TTM) basis increased 8% to 48.3 million by the end of the June quarter. However, TTM gross billings per active customer were down 6% to just over $120. While the company continued its growth spree in North America, its billings in international markets remained low through the June quarter.

In addition to the total spend by each customer, Groupon’s “take rate,” or the percentage of transaction value (gross billing) kept by Groupon, also fell by around 5 percentage points to 55%. In the near term, billings and take rate for international markets will likely remain low. However, the company’s billings and take could pick up in the long run and add to its profitability.

Groupon Q3 & Full Year Expectations

Groupon guided for Q3 revenues to come in around 10% lower on a y-o-y basis to $650 million, while full year revenues could be 8% lower at $2.9 billion. Similarly, gross profit for the full year is expected to be 7% lower than 2016 at just over $1.3 billion. Groupon raised its 2017 full year operating income guidance on the recent earnings call in light of expected marketing investments and cost benefits associated with the company’s streamlining initiatives. Reuters consensus estimate for the company’s full year EPS stands at 11 cents per share, compared to 4 cents a share in 2016.

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