Groupon (NASDAQ:GRPN), the daily coupon website, saw a bit of volatility on the release of its third quarter earnings. The stock price which had fallen in double digits just a few hours before the earnings release went up 6% post the release. The highlight of the quarter is the company's turnaround in earnings to positive 2 cents per share. We review the earnings performance to see if the stock is attractive for investors at the current price levels.
Apart from the earnings, the other positives were the announcement of acquisition of Living Social’s Korean Ticket Monster, an increase in mobile user base contributing to 40% of global bookings and its strategic change towards e-commerce. These seem to have triggered a good response from investors with the stock price jump following the earnings release.
However, the deal-focused revenue declined 7% Y/Y which still contributes 65% of its revenues. Investors have ignored its total revenue year on year (Y/Y) growth of only 4.7% which is well below the industry mark to justify the kind of valuation Groupon enjoys today. The big issue with deals based revenue has been Gmail’s recent reorganized email Inbox, which sent Groupon's email alerts to the Promotions tab rather than the Primary tab.
Let’s take a look at the segmental revenue break up for the company:
Through the company’s earnings turned positive to 2 cents per share (Non-GAAP basis) and have beaten the analysts' expectations of 1 cent at streetinsider.com, still they do not seem to be overly exciting. Gross billings crossed levels of 1.3 billion (10% Y/Y) while active users reached 43.5mn up 10% Y/Y. It has also announced fourth quarter guidance of $690 to $740 billion in revenues and break-even to 2 cents per share of earnings, which is way below analysts' estimates.
The future of Groupon lies with its ability to build a loyal customer base. In the highly competitive industry of e-commerce, we are yet to see how the daily deal business benefits from the strategic change to pull model from its erstwhile email push model. Since the shift is still in process, how it will be integrated in the margins of the company, still remains a question. Therefore, a market cap of $6.7 billion on a quarterly revenue of $595 million with practically no profits, seems on the upper side of its valuation.
To see Groupon’s latest stock price movement, click here (NASDAQ:GRPN)