Groupon: Time for GRPN Stock to Seek a Buyer?
The turnaround has proven tough as the company reports a disappointing outlook
By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor | Feb 21, 2014, 2:34 pm EST
Groupon’s ( GRPN) turnaround efforts have stalled, with the stock down about 20% in today’s trading. The strong push into ecommerce has proven to be difficult, especially given the fierce competition. In fact, the year has turned out to be fairly bad for GRPN stock, with the loss coming to a grueling 30%.
 With the holiday rush, however, the company actually posted a strong fourth quarter. Revenues jumped by 20% to $768.4 million, and non-GAAP earnings came to 4 cents per share. The Street was looking for $717 million in revenues and a 2-cent profit. Although, EBITDA was on the light side at $72 million, compared to the consensus forecast of $76.2 million.
But of course, investors were more concerned about the outlook, which was disappointing — as the performance of GRPN stock proved. For the current quarter, the company expects a non-GAAP loss of 2 – 4 cents per share and revenues to range from $710 million to $760 million. While this beat the Street forecast for revenues — at $668.7 million — it was well below the earnings estimate. Analysts were predicting a profit of 2 cents per share to 4 cents per share.
The fact is that Groupon’s efforts to build an ecommerce platform have been costly, and that could weigh on GRPN stock for a while. Consider that the company has had to take heavy charges for acquisitions, such as Ticket Monster and Ideeli. But there are also huge investments for warehouses and logistics systems.
At the same time, the international business continues to be a slog. In Asia and Latin America, there was a 15.3% decline in revenues for Q4. It certainly doesn’t help that there has been turmoil in emerging markets. But GRPN has also felt the pressure from intense competition. This was the reason the company has decided to pullback from China, writing down its investment in FTuan.
Despite all this, there were some positive developments in the earnings report, which could help GRPN stock. Perhaps the most important was mobile, which now account for 50% of worldwide transactions. In the latest quarter, the Groupon app got about 9 million downloads, bringing the total to a whopping 70 million.
Keep in mind that 80% of the quarter’s downloads didn’t involve any advertising (which can be pricey, by the way). As seen with other hot companies like Yelp ( YELP), mobile is critically important and can drive a hefty valuation.
But one big problem remains for GRPN stock: Operating an ecommerce business requires massive scale. However, the company only has about $1.2 billion in the bank, and its market cap is about $5.7 billion. In light of this, it will remain tough to deal with operators like Amazon ( AMZN) and and eBay ( EBAY).
Instead, a better approach would be to find a suitor. After all, Google ( GOOG) offered to buy GRPN a few years ago, and it seems reasonable that it would still be interested — especially given the strength in the mobile platform.
But there are other potential buyers like Microsoft ( MSFT) or even Facebook ( FB). And it looks like dealmaking in the Internet sector is starting to heat up — so the timing seems good to explore a deal.
But if not, it could be tough for GRPN stock to provide much upside for investors.
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