Groupon (GRPN) Down 17.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Groupon (GRPN). Shares have lost about 17.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Groupon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Groupon Q1 Earnings Top Estimates, Revenues Miss

Groupon reported first-quarter 2020 non-GAAP loss of $1.63 per share, narrower than the Zacks Consensus Estimate of a loss of $2.01. Notably, the company reported a earnings of 58 cents reported in the prior-year quarter.

Revenues of $374.2 million lagged the Zacks Consensus Estimate by 0.9% and declined 35% on a year-over-year basis (down 35% excluding foreign exchange effect).

Region-wise, North America revenues decreased 34.2% from the year-ago quarter to $235.1 million. International revenues fell 37.2% (down 35.4% excluding foreign exchange effect) year over year to $139 million.

Quarter Details

Service revenues were down 27.6% year over year to $207 million. Product revenues slumped 42.9% to $167.1 million.

Moreover, Local revenues of $191.3 million declined 24.1% from the year-ago quarter. North America Local revenues decreased 20.9% and International Local revenues fell 32%, excluding foreign exchange effect.

Further, Goods revenues tumbled 38.2% year over year to $195.9 million. North America Goods revenues plunged 45.5%. International Goods revenues declined 35.6%, excluding foreign exchange effect.

Travel revenues fell 64.4% year over year to $9.7 million. North America Travel revenues plunged 66%. International Travel revenues declined 61.2%, excluding foreign exchange effect.

In the first quarter, gross billings were $806.4 million, down 30.7%, excluding foreign exchange effect.

North America billings were $526.7 million, down 31.5% year over year. International billings were $279.7 million, down 29.3% excluding foreign exchange effect.

North America Local, Travel and Goods gross billings declined 21.8%, 63.4% and 42.5% on a year-over-year basis, respectively.

International Local, Travel and Goods gross billings declined 22.2%, 46.5% and 33.1% on a year-over-year basis, excluding foreign exchange effect, respectively.

Global units sold during the reported quarter declined 20% year over year to 29.8 million, primarily owing to the coronavirus crisis-induced negative impact on demand in the month of March, lower Goods sales, decrease in traffic and fewer customers. North America units were down 13% and 42% in Local and Goods, respectively. International units were down 13% in Local and 22% in Goods.

Customer Metrics

As of Mar 31, 2020, Groupon had approximately 16.5 million active customers internationally compared with 17.1 million at the end of the previous quarter.

Moreover, as of Mar 31, 2020, the company had approximately 25.3 million active customers based in North America compared with 26.5 million at the end of the prior quarter.

Operating Details

Gross profit in the first quarter came in at $201.2 million, down 34% (down 34%, excluding foreign exchange effect) year over year.

International gross profit decreased 39% year over year, excluding foreign exchange effect, to $57.5 million. Coronavirus crisis led negative impact on demand in the month of March, intense competition in Groupon’s Goods category, weak consumer sentiment in Europe, particularly the U.K., and a customer shift toward lower margin Local offerings negatively impacted profitability.

International Local, Goods and Travel gross profit decreased 35%, 47% and 66% on a year-over-year basis, excluding foreign exchange effect, respectively.

Moreover, North America’s gross profit fell 31% to $143.8 million, primarily owing to fewer customers and lower traffic. North America Local, Goods and Travel gross profit decreased 23%, 52% and 74% on a year-over-year basis, respectively.

Adjusted EBITDA loss came in at $22.5 million, compared with adjusted EBITDA of $47 million reported in the prior-year quarter.

Selling, general and administrative (SG&A) expenses decreased 1.6% year over year to $207.1 million in the reported quarter.

Marketing expenses declined 36% to $60.1 million, primarily owing to lower offline marketing investments and accelerated traffic declines.

The company reported operating loss came of $197.9 million, against operating income of $2.2 million in the prior-year quarter.

Balance Sheet & Cash Flow

Groupon exited the quarter ending Mar 31, 2020, with cash and cash equivalents of $666.9 million, down from $750.9 million, as of Dec 31, 2019.

As of Mar 31, 2020, the company had $150 million of outstanding borrowings under $400 million revolving credit facility.

The company utilized $236.4 million of operating cash flow compared with $201.4 million generated in the prior quarter.

Free cash outflow came in at $247 million compared with $185.9 million of free cash flow reported in the previous quarter.

Guidance

For second-quarter 2020, Groupon projects adjusted EBITDA loss between $(45) million and $(20) million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -50.5% due to these changes.

VGM Scores

Currently, Groupon has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Groupon has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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