Groupon Q1 Loss Narrower than Expected, Revs Beat
By Zacks Equity Research May 7, 2014 1:30 PM
Groupon Inc. ( GRPN) reported first-quarter loss of 4 cents per share (including stock-based compensation, acquisition-related expenses and tax impact), which was wider than loss of a penny reported in the year-ago quarter. However, loss per share was narrower than the Zacks Consensus Estimate of 7 cents per share.
Quarter Details
Revenues jumped 26.0% year over year to $757.6 million, which beat the Zacks Consensus Estimate of $734.0 million. The year-over-year growth was primarily driven by a 104.1% surge in direct revenues, which offset a 3.0% decline in third party and other revenues in the reported quarter.
Region-wise, revenues from North America, EMEA and Rest of the world (Asia-Pacific and Latin America) increased 27.0%, 25.6% and 22.6% year over year, respectively.
Gross billings increased 29.1% year over year to $1.82 billion. Region-wise, billings from North America, EMEA and Rest of the world increased 14.7%, 4.3% and 122.9% year over year, respectively. The strong growth in billings was driven by robust performance from goods business and TMON.
As of Mar 31, 2014, active customers increased 24.0% year over year to 51.8 million, comprising 21.8 million in North America, 14.5 million in EMEA and 15.5 million in Rest of the world.
At the end of the quarter, on average, active deals were over 200K globally, compared with more than 140K at the end of fourth-quarter 2013. North American active deals increased to over 95K.
Groupon reported that approximately 54.0% of the worldwide transactions were through mobile devices. Moreover, more than 10.0 million people downloaded Groupon’s mobile app during the quarter, which led to a robust mobile business.
Gross margin decreased from 63.0% to 50.9% in the quarter due to unfavorable business mix. Adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) were $40.3 million compared with $71.9 million in the year-ago quarter.
Operating expenses increased 12.9% year over year to $403.9 million due to higher selling, general & administrative expenses as well as marketing expenses. As a result, operating loss was $18.2 million compared with operating profit of $21.2 million in the year-ago quarter.
Groupon’s net loss (including stock-based compensation but excluding acquisition-related expenses and tax impact) was $26.5 million.
Groupon exited the first quarter with cash and cash equivalents worth $1.04 billion compared with $1.24 billion reported in the previous quarter. Cash outflow from operating activities was $20.7 million compared with cash flow from operating activities $178.3 million generated in the previous quarter.
Free cash outflow was $37.1 million compared with $25.7 million in the previous quarter. The company spent $29.5 million on share buyback during the quarter.
Outlook
For the second quarter of 2014, Groupon forecasts revenues in the range of $725.0 to $775.0 million. The company expect year-over-year local billings growth in North America in the second quarter to remain relatively flat on a sequential basis. North America billings are expected to accelerate post second quarter, reaching double-digit growth by year-end.
Groupon expects to continue to make steady progress in the EMEA region throughout 2014, with Local billings returning to stronger growth by year-end.
Groupon expects EBITDA in the range of $45.0 to $65.0 million for the quarter. Management expects to report earnings of a penny to 2 cents for the second quarter of 2014. The Zacks Consensus Estimate is currently pegged at a loss of 2 cents per share.
For fiscal 2014, adjusted EBITDA is expected to be $300.0 million.
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, Groupon’s back-end loaded EBITDA guidance is a major concern. We note that in North America, the company continues to face significant competition not only from the stalwarts like eBay ( EBAY) and Amazon.com ( AMZN) but also from small companies like LiveDeal ( LIVE), which is a major headwind in the near term.
Currently, Groupon carries a Zacks Rank #4 (Sell).
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