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Groupon Sinks to 52-Week Low Figures

Posted on Friday, May 9th 2014

Online daily deals site Groupon (Nasdaq: GRPN) does not seem to be recovering at all. Earlier this week, they announced quarterly results that managed to exceed market projections. But despite their performance, a weak industry outlook and rising company costs sent the stock tumbling to 52-week low figures. According to a report by IBISWorld, the daily deals industry in 2013 was pegged to be worth $3.3 billion in revenues, recording a 15% growth over the year. But growth is expected to slow down significantly this year, when the industry is projected to grow a comparatively meager 3.5% to $3.4 billion. The research report estimates growth to remain at 4% levels till 2018 when the industry will be worth $4 billion in revenues.

Groupon’s Financials
Groupon’s first quarter revenues grew 26% over the year to $757.6 million, ahead of market expectations of $734.0 million. Loss per share of $0.01 was also ahead of the Street’s projections of loss of $0.03 per share.

By segment, revenues from direct sales doubled to $331 million while revenues from third-party sources fell marginally to $426 million. By region, revenues from North America grew 27% to $431 million. EMEA revenues grew 26% to $231 million and revenues from the Rest of the World grew 23% over the year.

Among operating metrics, Groupon had 51.8 million active customers at the end of March, recording a 24% growth over the year. North America accounted for 21.8 million customers and 14.5 million customers were in EMEA. 15.5 million subscribers were based in Rest of the world. Groupon ended the quarter with 200,000 average active deals compared with 140,000 a year ago. Mobile continued to grow as they reported a 54% increase in transaction over mobile devices. During the quarter, Groupon saw 10 million downloads for their mobile apps. Average trailing twelve month billing per active customer declined marginally from $134 a year ago to $132 for the latest quarter.

For the current quarter, Groupon forecast revenues of $725 million-$775 million with EPS of $0.00-$0.02. The Street was projecting revenues of $758 million with an EPS of $0.03. Groupon revised their EBITDA projections for the year upwards from $287 million to $300 million.

Groupon’s Rising Costs
While Groupon may have managed to report better than expected losses for the quarter, their operating income performance speaks another story. The increasing share of direct revenues hurt their gross margin as these product revenues are accompanied by higher costs. As a result, while revenues grew 26% over the year, Groupon saw gross margin fall from 63% to 59%. Add to that their continued investments in marketing efforts which drove sales and marketing expenses up by 60% over the year to $78.9 million. Part of that increase was attributed to the recent launch of Groupon Deal Builder, their self-service platform for merchants that lets them create deals without interacting with a sales representative.

Groupon is taking active steps to manage their costs better. As part of this initiative, they are evaluating several options and are proposing changes like increasing the free shipping threshold from $19.99 to $24.99. They are also working to shift fulfillment to their own distribution center in Kentucky for the US market. For international markets, Groupon plans to cut costs by consolidating back office operations.

But the market is not pleased with Groupon’s stock and it is trading at 52-week low levels of $5.30 with a market capitalization of $3.6 billion. It touched a 52-week high of $12.76 in September last year. It has lost more than 73% of its value since listing at $20.

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