Groupon’s (NASDAQ:GRPN) stock price has fallen 20% in the last two months after posting mixed Q2 results. While high single digit revenue declines were expected over the last few quarters, margins remained low in international markets. For the current year, the company’s revenue decline is expected to continue due to tougher year-over-year comparisons after the company exited certain international markets in the last couple of years. However, on an organic basis, we expect gross billings per customer and active customers to increase.
We believe that the company can continue to keep user engagement levels high, especially in its key markets in the U.S. We have created an interactive valuation dashboard for Groupon, where we have summarized our expectations for the company’s full year results and the near-term valuation based on the expected results. If you disagree with our forecasts, you can change the key drivers – such as active users, gross billings per user and margins – for Groupon, and gauge how changes will impact its valuation.
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A decline in revenues was expected due to the company exiting some markets in the last couple of years in an attempt to boost profits. As a result, the company’s gross profit and EBITDA margins have somewhat improved in recent quarters. In the same period, Groupon’s third-party business has performed well in North America, while direct sales have been the key growth driver in international markets. Consequently, margins improved in North America and compressed in international markets, as the third-party business has higher margins.
Going forward, we expect the trend to continue through the end of the year. We forecast the company’s North America revenues to fall 10% to $1.7 billion for the year. These revenues are already down over 15% through the first half of the year to $775 million. On the other hand, its international revenues have increased nearly 14% to $470 million in the first half of the year. We expect Groupon to continue to perform well in international markets with full year revenues forecast to reach $1 billion, up from $930 million in 2017. As a result, we forecast net revenues to stand at $2.8 billion, which is slightly more optimistic than consensus estimates. Due to these factors, we maintain our $4.20 price estimate for Groupon’s stock, which is around 10% ahead of the current market price.
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