Groupon Reports in line 1Q Loss

Zacks

Groupon Inc. (GRPN) reported a loss per share of 1 cent (including stock-based compensation but excluding acquisition related expenses) in the first quarter of 2013, which came in line with the Zacks Consensus Estimate. When compared on a year-over-year basis, loss per share improved from the loss of 2 cents incurred in the year-ago quarter.

On a non-GAAP basis (excluding stock based compensation and acquisition related expenses) the company reported earnings of 3 cents.

Quarter Details

Groupon’s revenues not only increased 7.5% year over year to $601.4 million, but also came ahead of the Zacks Consensus Estimate of $598.0 million. Reported revenues were within management’s guidance range of $560 million-$610 million.

Region wise, revenues from North America were up 42.3% year over year to $339.6 million, while Groupon’s international revenues decreased 18.4% year over year to $261.8 million.

The strong year-over-year revenue growth was primarily due to the higher gross billing, which increased 3.9% year over year to $1.41 billion. This year-over-year growth can be attributed to a steady increase in the number of active customers (up 13.0% year over year), which stood at 41.7 million as of Mar 31, 2013.

The company reported that 45.0% of the transactions in North America were through mobile devices, which increased from 30% in the year-ago quarter. Moreover, more than 7 million people downloaded Groupon’s mobile apps during the quarter, which led to a robust mobile business. 

The company reported an operating income (excluding stock based compensation and acquisition related expenses) of $51 million, which decreased from $67.7 million in the year-ago quarter primarily due to investments in the international operations.

Groupon’s net loss (including stock based compensation but excluding acquisition related expenses) of $9.45 million narrowed from a loss of $11.7 million in the year-ago period. However, on a non-GAAP basis (excluding stock based compensation but excluding acquisition related expenses) the company reported a net profit of $16.9 million.

Groupon exited the first quarter with cash and cash equivalents worth $1.17 billion. Cash flow from operating activities was $8.8 million.

Outlook

For the second quarter of 2013, Groupon forecasts revenues to increase in the range of $575 million to $625 million, significantly lower than the Zacks Consensus Estimate of $933 million.

Groupon expects operating income to be in the range of $20.0 million to $40.0 million for the next quarter. During the second quarter, Groupon expects to invest $15 million–$30 million to drive in new customer growth and an overall customer engagement.

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, going forward.

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

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

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