Groupon Q3 Breaks Even, Revs Up Y/Y - Analyst Blog

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Groupon Inc. ( GRPN ) broke even in the third quarter of 2013, almost flat from the year-ago quarter and beat the Zacks Consensus Estimate of a loss of 2 cents.

Quarter Details

Revenues climbed 4.7% year over year to $595.1 million, which lagged the Zacks Consensus Estimate of $613.0 million. The year-over-year growth was primarily driven by a 38.0% jump in direct revenues, which offset a 6.7% decline in third party and other revenues in the last quarter.

Region wise, revenues from North America increased 23.7% year over year, which more than offset the 21.0% and 3.8% declines in revenues from EMEA and Rest of the world (Asia-Pacific and Latin America), respectively.

Growth in revenues was also due to higher gross billing, which increased 10.2% year over year to $1.34 billion. This growth can be attributed to a steady increase in the number of active customers (up 10.0% year over year), which stood at 43.5 million as of Sep 30, 2013.

Groupon reported that 50.0% of the transactions in North America were through mobile devices. Moreover, more than 9.0 million people downloaded Groupon's mobile apps during the quarter, which led to a robust mobile business. Approximately 40.0% of global transactions were done through mobile devices in September.

Gross margin plunged 760 basis points (bps) to 60.4% in the quarter due to unfavorable business mix. However, operating expenses as a percentage of revenues declined 470 bps to 58.4% due to lower selling, general & administrative expenses as well as marketing expenses.

Despite this steep decline in expenses, operating margin decreased 280 bps due to lower gross margin base in the quarter. Groupon's net loss (including stock-based compensation but excluding acquisition-related expenses) was $4.1 million, which was slightly better than a loss of $5.3 million reported in the year-ago quarter.

Groupon exited the third quarter with cash and cash equivalents worth $1.14 billion. Cash used from operating activities was $11.9 million compared with $43.0 million generated in the previous quarter. Free cash outflow was $27.0 million compared with in flows of $29.0 million in the previous quarter. The company spent $9.0 million on share buyback during the quarter.

Groupon also announced that it has entered into an agreement to acquire Korean e-commerce company Ticket Monster, a subsidiary of LivingSocial Inc for $260.0 million. The company expects the transaction to close in the first half of fiscal 2014.

Outlook

For the fourth quarter of 2013, Groupon forecasts revenues to be in the range of $690.0 million to $740.0 million. The company expects the bottom line to range from breakeven to earnings of 2 cents per share.

Groupon expects operating income (excluding stock-based compensation and acquisition-related expenses) in the range of $40.0 million to $60.0 million for the forthcoming quarter.

Our Take

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 the company.

However, we believe that the market is becoming more competitive due to the growing interest from technology stalwarts such as eBay ( EBAY ) , Amazon ( AMZN ) and Google ( GOOG ) . Moreover, a volatile macro economic environment and continued investments to expand its merchant base are expected to impact near-term results.

Currently, Groupon carries a Zacks Rank #3 (Hold).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMZN , EBAY , GOOG , GRPN

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