Groupon Inc. (
reported second-quarter loss of 2 cents per share (including
stock-based compensation, acquisition-related expenses and tax
impact), which compared unfavorably with earnings of 2 cents
reported in the year-ago quarter. However, loss per share was
narrower than the Zacks Consensus Estimate of 4 cents per share.
Revenues jumped 23.5% year over year to $751.6 million, which
missed the Zacks Consensus Estimate. The year-over-year growth was
primarily driven by 82% surge in direct revenues, which offset 3.1%
decline in third party and other revenues in the reported quarter.
Region-wise, revenues from North America, EMEA and Rest of the
world (Asia-Pacific and Latin America) increased 12.4%, 42.3% and
39.6% year over year, respectively. EMEA revenue growth was driven
by higher mix of direct revenues.
Gross billings increased 29% year over year to $1.82 billion,
driven by 26% year-over-year growth in goods business and 44%
growth in travel. Region-wise, billings from North America
increased 12.2% year over year, while it soared 144.8% in Rest of
North American local billings increased 1.8% year over year due to
lower redemptions. Per management, the average number of unused
Groupons per customer (a good indicator of people's willingness to
buy more) has stabilized more this year. Last year, it declined
more than 25%.
Rest of the world billings growth was primarily driven by robust
performance by Ticket Monster (TMON), which Groupon acquired early
this year. Excluding the TMON business, revenues increased 40% from
the year-ago quarter.
Despite 14% year-over-year growth in goods business, EMEA billings
remained flat on a year-over-year basis in the quarter.
As of Jun 30, 2014, active customers increased 25% year over year
to 53.2 million, comprising 22.6 million in North America, 14.5
million in EMEA and 16.1 million in Rest of the world.
At the end of the quarter, on an average, active deals were over
240K globally, compared with more than 200K at the end of
first-quarter 2014. North American active deals increased to over
Groupon reported that approximately 50% of the worldwide
transactions were through mobile devices. More than 92.0 million
people downloaded Groupon's mobile app to-date.
Groupon is set to launch two new products namely Pages and Genome,
which together will allow it to enhance its local offerings.
Through Pages Groupon users will be able to find every local
merchant and their contact information, locations, time of service,
recommendations, tips, and most importantly, the variety of
discounts the merchants offer.
Genome is a service for merchants that helps them to identify
customers with Groupon coupons and enable them to pay for purchases
using Apple (
)'s iPad mini. The service will help local businesses process
coupons without a printed or digital voucher, accept credit-card
payments and customize marketing campaigns for vendors to target
Gross margin decreased from 63.2% to 51.9% in the quarter due to
unfavorable business mix. Adjusted earnings before interest, tax,
depreciation and amortization (EBITDA) were $50.1 million compared
with $80.5 million in the year-ago quarter.
Operating expenses increased 10.9% year over year to $397.1 million
due to higher selling, general & administrative expenses (up
15.8%) as well as marketing expenses (up 10%). As a result,
operating loss was $18.2 million compared with operating profit of
$21.2 million in the year-ago quarter.
Segment-wise, North America operating income was $14.5 million
significantly down from $48.5 million in the year-ago quarter. EMEA
increased slightly to $27.8 million from $24.7 million in the
year-ago quarter, primarily due to lower marketing costs.
Rest of the world reported loss of $17.9 million compared with
$85.8 million in the year-ago quarter, reflecting continuing
investments in TMON.
Groupon's net loss (including stock-based compensation but
excluding acquisition-related expenses and tax impact) was $15.0
million or 2 cents per share as compared with profit of $11.3
million or 2 cents reported in the year-ago quarter.
Groupon Inc - Earnings Surprise |
Groupon exited the second quarter with cash and cash equivalents
worth $868.1 million compared with $1.04 billion reported in the
previous quarter. Cash outflow from operating activities was $22.7
million compared with cash outflow of $20.7 million in the previous
Free cash outflow in the reported quarter was $53.8 million
compared with $37.1 million in the previous quarter. The company
spent $106.0 million on share buyback during the quarter.
Approximately $118 million remains available under the company's
existing repurchase authorization, which will expire in Aug 2015.
During the quarter, Groupon entered into a three-year, $250 million
revolving credit facility.
For the third quarter of 2014, Groupon forecasts revenues in the
range of $720 to $770 million. The mid-point of the guidance range
is slightly lower than the Zacks Consensus Estimate of $758
Groupon expects EBITDA in the range of $50.0 to $70.0 million for
the quarter. Management expects to report earnings per share
between breakeven and 2 cents for the third quarter of 2014. The
Zacks Consensus Estimate is currently pegged at a loss of 2 cents.
North America local billings are expected to accelerate in the
second half, which will help the company post double-digit growth
by year-end. Groupon also believes that it is on track to achieve
double-digit gross margin in North America by the end of this year.
Excluding TMON, Groupon expects to generate positive segment
operating income in Rest of the world by the fourth quarter of this
For fiscal 2014, adjusted EBITDA is expected to be $270.0 million
(down from $300.0 million).
We believe that Groupon is well positioned to gain from the rising
e-Commerce spending on mobile devices, a profitable domestic market
and an under-penetrated international market. We expect these
opportunities to continue to drive top-line growth. Moreover,
increased traction in the mobile business is another positive for
However, Groupon's lowered EBITDA guidance reflects ongoing
investments that will continue to hurt profitability. We note that
in North America, the company continues to face significant
competition, which is a major headwind in the near term.
Moreover, the Genome offering will bring Groupon into direct
competition with in-store payment providers (both hardware and
software) like VeriFone (
), Micros Systems (
) and Salesforce.com, which will be a headwind in the long run.
Currently, Groupon carries a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
VERIFONE SYSTMS (PAY): Free Stock Analysis
APPLE INC (AAPL): Free Stock Analysis Report
MICROS SYS (MCRS): Free Stock Analysis Report
GROUPON INC (GRPN): Free Stock Analysis Report
To read this article on Zacks.com click here.