Groupon (NASDAQ:GRPN) reported its earnings on the 20th of Feb 2014, ending the year with numbers that surpassed its own guidance as well as consensus estimates of analysts. It recorded its best sequential growth since listing. However, that couldn’t stop the stock from falling by about 20% as investors were disappointed by the company’s revenue guidance for Q1 2014 post its earnings announcement.
After an 8% rebound on the 24th of Feb, Groupon currently trades at a Price to Sales ratio of 2.18. Is it a good deal? We wouldn't jump in just yet.
Actuals VS Estimates
The company delivered a revenue of $768 million for Q4. Its own guidance was pegged at $690-740 million while analysts expected a revenue of $724 million for the quarter.
Groupon Q4 Financial Performance
For Q4 2013, Groupon reported an impressive sequential revenue growth of 29% en-route to its best Q/Q growth recorded since its listing. The company’s revenue grew 20% over Q4 in 2013 (Y/Y).
Groupon also surprised the markets with better than expected profit margins, as it showed an improvement in operating profits as well as net profits on a Y/Y basis. That said, operating profit margins remained very modest, and there are no net profits to speak of.
The company’s goods segment showed significant growth of 64% Q/Q as it accounted for 11% more of the revenue share than it did last quarter. In December 2013, close to 50% of Groupon’s global transactions were completed using mobile devices, taking the company closer to its vision of being a mobile marketplace. On the deals side, the company also found encouragement in the fact that the number of coupons redeemed on the same day doubled and unused coupons also saw a decline.
The company’s active customers grew by 3.2% to 44.9 million with the average spend slowing marginally in Q4. Average spend was held up by the EMEA region while North America and the rest of the world dragged down the overall average. The EMEA region lifted the company’s overall performance, registering the fastest revenue growth by region while being the most profitable.
Groupon’s cash flows improved significantly in the quarter with cash flows from operations (OCF) as well as free cash flows (FCF) accounting almost fully for the company’s OCF and FCF in the entire year.
Groupon completed the acquisition of Korean e-commerce company Ticket Monster, in January 2014 with $100 million in cash and $163 million worth of class-A shares. Groupon also completed the acquisition of Ideeli, the fashion, accessories and home décor retailer in January for $43 million in cash.
While both these companies will add revenue of up to $50 million to Groupon’s top-line, they will undoubtedly be dragging the net margins lower. The company is expected to report some acquisition costs in the quarter to follow. That apart, the company has expressed its intent to help these companies get things rolling with some marketing initiatives that could shave up to $25 million off the income statement.
The company currently has a cash balance of $1.2 billion which it is likely to deploy to acquire companies or continue share buy-back more aggressively.
Future earnings guidance
Groupon’s revenue guidance for Q1 2014 expects revenue to be in the range of $710-$760 million translating to a sequential decline and an 18% - 26% growth on a Y/Y basis, which in itself isn’t too bad going by the company’s track record.
But Groupon’s revenue excluding its latest acquisitions would be in the range of $660 – $710 million. While that represents a Y/Y growth of 10% to 18% which again is better than its past performances, in sequential terms it is a decline of 14% - 8%, which is what investors are unhappy about.
Groupon’s performance and stock price have jointly increased our leaning towards it because:
A) It has finally started to show some serious revenue growth.
B) Its stock price has corrected 18% even after the 8% rebound.
However, we would like to observe the company over the coming couple of quarters before making up our minds about it. The stock isn't expensive, but the company's guidance leads us to wonder if the revenue jump is a one-off event. Further, we would like to understand if the growth in its goods business is sustainable and could eventually lead the company to achieve net profits.
To see Groupon’s latest stock price movement, click here (NASDAQ:GRPN)