Groupon Still Struggling

Recently, online travel player Priceline purchased online restaurant reservation service provider OpenTable for $2.6 billion. The acquisition has sparked merger interest in several other local focused online players such as Yelp. Recently, analysts have also been speculating the possibility that daily deals site Groupon (Nasdaq: GRPN) could be a possible take-over target and that someone like Google may be interested in buying it to beef up their Google Offers service.

Groupon’s Financials
Groupon’s Second quarter revenues grew 23% over the year to $751.6 million, falling short of the market’s expectations of $762 million. During the quarter, gross billings increased 29% to $1.82 billion as they saw a 26% increase in Groupon Goods and a 44% increase in travel sales. EPS of $0.01 was in line with the Street’s projections for the quarter.

By region, revenues from North America reported the slowest growth at 12% over the year. International expansion efforts are delivering results as EMEA and Rest of the world saw revenues grow 42% and 40%, respectively.

Among operating metrics, Groupon’s active customers increased 25% over the year to 53.2 million. North America contributed 22.6 million active customers. EMEA customers remained flat over the quarter at 14.5 million and the Rest of the World accounted for 16.1 million active customers. At the end of the quarter, they had 240,000 average active deals compared with 200,000 a quarter ago. Within the US, the number of active deals increased to 105,000. Mobile usage has improved with mobile devices accounting for nearly 50% of the transactions worldwide. By the end of the quarter, they recorded over 92 million downloads of their mobile app.

For the current quarter, Groupon forecast revenues of $720-$770 million with an EPS of $0.00-$0.02. The market was modeling revenues of $760 million with an EPS of $0.03. Groupon revised their EBITDA projections for the year downwards from $300 million to $270 million.

Groupon’s Product Upgrades
Groupon plans to improve their e-commerce related offering through new services. Groupon realizes that despite the rising subscriber base, they are yet to make a big impact within the retail space. According to market reports, only 5% of the available merchants in the country use Groupon’s services to sell their goods. As part of this emphasis, they are working on Groupon Pages and Genome.

Groupon Pages will not only offer the customer access to retailers’ offered Groupon discount, but also feature additional information like customer tips, operating hours, location, and maps. To simplify the payment process for customers and retailers, Groupon will be releasing a new operating system, Genome. Genome will enable merchants to identify customers who have Groupon coupons and let these customers pay using iPad mini. Using Genome, merchants will no longer require either a printed or a digital voucher to process the Groupon discount.

Groupon’s stock is trading at $6.17 with a market capitalization of $4.21 billion. It touched a 52-week high of $12.76 in September 2013. The stock recovered from the 52-week low of $5.18 that it had touched in May this year soon after the announcement of the Priceline and OpenTable deal.

Two years back, Google offered $6 billion to acquire Groupon. Groupon, in its infinite hubris, had turned them down. Today, if Google made the same offer again, it is unlikely that shareholders will be so arrogant.