- Groupon has delivered yet another poor quarterly report that sent its already battered shares tanking.
- The company's revenue continued contracting while billings fell after showing signs of growth during the previous quarter.
- Groupon is really caught between a rock and a hard place and its shares remain a value trap.
Groupon (NASDAQ:GRPN) shares tanked a massive 26% after the company delivered mixed Q3 fiscal 2015 results and provided light fourth quarter guidance. Groupon reported consolidated revenue of $713.6 million, representing -5.7% Y/Y growth and $19.14 million below consensus. The company reported EPS of $0.05, $0.03 above consensus. The daily deals company also reported gross profit of $328.9 million and operating cash flow of $316.4 million.
And now the less palatable parts of the report: Groupon’s billings, an important indicator of future business, fell 2% Y/Y to $1.47 billion, after rising 2% during the second quarter.
Groupon also said it expects Q4 revenue of $815M-$865M and EPS of -$0.01 to $0.01, way below consensus $956.8M and $0.07. The poor guidance, coupled with the announcement that chief executive Eric Lefkofsky was stepping down with current COO Rich Williams taking charge at the helm, drove Groupon stock down in one of the company’s worst post-earnings losses. The huge slide more than wiped out the 17.5% gain the shares had managed to tuck on over a five-day period prior to the earnings call. It appears as if investors believed the company’s worst days were behind it only to receive another rude shock. Groupon stock is now trading just a shade above their historical low. The shares are down more than 64% Year-to-Date.
Is There any Hope for Groupon Stock?
With Groupon churning out one disappointing quarter after another, the company has its work cut out before it can return to investor’s good books. New CEO Williams had this to say:
"I'm assuming the CEO role with three immediate priorities. First, we will renew our investment in customer acquisition to introduce more new customers to our marketplace and accelerate growth. Second, we will increase our focus on streamlining our international operations to ensure we are operating as lean and efficiently as possible. Finally, we will shift our Shopping category away from lower-margin empty calorie products to grow a sustainable, healthy Goods business with stronger margins."
Those comments hinted at the company following on its September layoffs with another round of new layoffs. The big problem is that Groupon is experiencing a lot of trouble expanding into new international markets. While the company’s billings in North America grew a healthy +12.3% to $869.2M, billings in EMEA were down 15.3% to $414.5M while billings in the rest of the world fared even worse after plunging 18.9% to $183.8M. It’s not clear how Groupon intends to expand its international business by laying off workers there.
While it’s possible that Groupon deliberately guided light for the coming quarter in order to make it easier for the company to beat its own fourth quarter guidance, the anemic billings do not augur well for the company. Meanwhile, Groupon’s margins continue contracting. The company’s gross margin clocked in at 46.1% during the quarter, a worrying 360 basis point decline compared to last year’s comparable quarter as the company’s continuing shift to the lower-margin goods business continues to pressure margins. Meanwhile, Groupon’s traditional deals business continues shrinking as the company is forced to take an increasingly smaller cut of revenues from merchants who have been questioning the value proposition of Groupon deals to their businesses. Groupon’s local deals revenue plunged 10% to $260.9 million primarily due to a lower take rate. Groupon’s take rate has fallen from 50% a couple of years ago to just 23% currently.
There is very little to like about Groupon’s business or its latest report. As I explained in my Grupon’s earnings preview, Groupon shares are likely to remain a value trap and not a value play despite being so cheap. Avoid Groupon stock.