Groupon Inc. (
GRPN
)
reported second quarter 2012 results with earnings of 8 cents per
share, much better than the Zacks Consensus Estimate of a loss of 2
cents. However, revenue was well short of the consensus mark.
Shares plunged 19.74% to $6.06 in after hours trading.
Quarter Details
Revenue jumped 44.8% on a year-over-year basis to $568.3 million
and was within the management's guided range of $550.0 million to
$590.0 million. Region wise, revenue in North America soared 65.5%
year over year to $260.2 million. Groupon's international revenue
shot up 30.9% year over year to $308.2 million.
The strong revenue growth can be attributed to higher gross
billing, which surged 38.0% year over year to $1.29 billion in the
reported quarter. This huge growth can be attributed to a steady
increase in the number of active customers, which surpassed 38
million as of June 30, 2012.
A significant decline in marketing expenses, down 58.0% year
over year, helped Groupon to generate an operating profit
(including stock-based compensation) of $44.9 million compared to a
loss of $101.0 million in the year-ago quarter.
Groupon reported net income of $53.8 million or 8 cents compared
to a net loss of $68.7 million or 23 cents per share in the second
quarter of 2011. Including stock-based compensation of $27.1
million but excluding acquisition related charges of $1.6 million,
net income was $26.8 million or 4 cents in the reported
quarter.
As of June 30, 2012, Groupon's cash and cash equivalents
amounted to $1.19 billion compared with $1.16 billion in the
previous quarter. Cash flow from operating activities was $75.3
million compared with $83.7 million in the previous quarter. Free
cash flow was $48.6 million compared with $70.6 million at the end
of first quarter.
Outlook
Groupon provided an optimistic outlook for third quarter of
2012. The company forecasts revenue to increase in the range of
35.0% to 44.0% and to remain within a range of $580.0 million to
$620.0 million. Groupon expects operating income to be in the range
of $15.0 million to $35.0 million for the third quarter.
Our Take
We believe that Groupon is well positioned to gain from 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 going
forward.
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 of technology stalwarts such as
Amazon.com Inc. (
AMZN
)
and
Google Inc. (
GOOG
)
. Moreover, a sluggish European market remains a major headwind
going forward.
Further, we believe that Groupon needs to post profits on a
consistent basis for the next couple of quarters to gain the
confidence of its jittery investors. Until that happens, we prefer
to remain Neutral on the stock over the long term.
Currently, Groupon has a Zacks #3 Rank, which implies a Hold
rating in the short term.
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