Groupon Inc. (
reported better-than-expected first quarter 2012 results, with
earnings of 2 cents per share (excluding stock based compensation)
improving considerably from a loss of 41 cents per share in the
year-ago quarter. Following the result, Groupon shares surged
18.54% to close at $11.74.
Including stock-based compensation of 4 cents per share; Groupon
reported a loss of 2 cents, much better than the Zacks Consensus
Estimate of a loss of 4 cents. Strong revenue growth and lower
marketing expense drove the quarterly result.
Revenue was up a staggering 89.0% on a year-over-year basis to
$559.3 million. Region wise, revenue in North America increased
74.7% year over year to $238.6 million. Groupon's international
revenue shot up 101.8% year over year to $320.7 million.
The strong revenue growth can be attributed to higher gross
billing, which increased 103.0% year over year to $1.35 billion in
the reported quarter. This huge growth can be attributed to a
steady increase in the number of active customers, which surpassed
35 million as of March 31, 2012.
Groupon also gained strongly from increasing number of
transactions on mobile devices (50.0% of total transactions).
Groupon Now!, the company's mobile service is growing at a faster
rate than the daily deals business, which will boost top-line
growth going forward.
Customer additions for Groupon remained flat sequentially,
despite a significant decrease in marketing spending. Most
importantly, repeat purchasers grew 1.5 times faster than the
number of unique purchasers, reflecting the addictive nature of the
A significant decline in marketing expenses (21.0% of revenue;
down from 78.0% in the year-ago quarter), down 49.3% year over
year, helped Groupon to generate an operating profit of $39.6
million compared to a loss with $117.2 million in the year-ago
Region wise, operating income from North American operations
increased 25.3% to $198.4 million. International operations
reported an operating profit of $27.4 million compared with a loss
of $76.5 million in the year-ago quarter.
Groupon reported a net income of $16.3 million compared with a
net loss of $127.6 million in the first quarter of 2011. Including
stock based compensation of $28.0 million but excluding acquisition
related charges of $0.05 million, net loss was $11.7 million in the
As of March 31, 2012, Groupon's cash and cash equivalent
amounted to $1.16 billion and no debt. Cash flow from operating
activities was $83.7 million while free cash flow was $70.6 million
at the end of first quarter.
Groupon provided an optimistic outlook for second quarter of
2012. The company forecasts revenue to increase in the range of
40.0% to 50.0% and to remain within a range of $550.0 million to
$590.0 million. Groupon expects operating income to be in the range
of $25.0 million to $45.0 million for the second quarter.
After a tumultuous six-month period post initial public offering
(IPO) in November 2011, it seems that Groupon is finally gaining
some traction. We believe that Groupon is well positioned to gain
from rising e-commerce spending on mobile devices, profitable
domestic market and an under penetrated international market. We
expect these opportunities to continue to drive top-line growth
Moreover, Groupon has been on an acquisition spree over the last
couple of quarters as the company acquired a number of companies
such as Uptake, Hyperpublic, Adku, and FeeFighters. These
acquisitions are expected to boost Groupon's position in the small
and medium-size business (SMB) market, apart from expanding its
technology and product portfolio.
Groupon enjoys a first-mover advantage in the daily deals market
based on its well-recognized discount coupons. However, we believe
that the market is getting more competitive due to the growing
interest from technology stalwarts such as
Amazon.com Inc. (
Google Inc. (
Moreover, we believe that Groupon need to post profits on a
consistent basis for the next couple of quarters to gain confidence
of its jittery investors. Until that happens, we prefer to remain
Neutral on the stock over the long term.
Currently, Groupon has Zacks #3 Rank, which implies a Hold
rating in the short term.
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