Groupon Q3 2014 Earnings Review

  • Groupon reported a fairly solid quarter beating on revenue while missing earnings marginally.
  • Billings grew significantly on a year-over-year basis, which came as a result of higher conversion on mobile, paired with improving mobile active user metrics.
  • Going forward, Groupon will beat analyst estimates as guidance was conservative, and various growth catalysts should materially impact earnings and revenue.

Groupon Q3 2014 earnings review

Groupon (NASDAQ:GRPN) reported another fairly solid fiscal quarter in which key metrics exceeded expectations sending shares significantly higher. Analysts on a consensus basis anticipated the company to report earnings per share (EPS) of $.01, and revenue of $750 million.  Groupon topped revenue estimates, and missed EPS. The company reported revenue of $757 million, and EPS of $(.03), in Q3.

Admittedly, Groupon isn’t very profitable, because it’s going through an investment phase, which will diminish the rational of owning Groupon stock on the basis of P/E or EV/EBITDA. However, the business has been able to report fairly solid growth in some key segments, which drove the shares higher following the earnings release.

Groupon stock price movement


The stock is currently trading well above key moving averages, and it’s likely that sentiment improved on the back of improving mobile metrics, increases in average spend, and accretion from its recent acquisition of Ticket Monster. All of these factors, paired with greater synergy possibilities of online and offline transactions following the recent launch of Apple Pay have driven speculation that Groupon’s business model is highly compatible in its respective business environment.

Groupon’s guidance for next quarter was pretty solid:

  • Revenue between $875 million and $925 million
  • Adjusted EBITDA between $80 million and $100 million
  • Non-GAAP EPS of between $0.02 and $0.04 excluding stock compensation, amortization of acquired intangibles and acquisition-related costs, net of tax.

Analysts on a consensus basis anticipate revenue of $928 million, and EPS of $0.07. Groupon will most likely report at the high-end of the range, as management tends to be extremely conservative on guidance.

Groupon active customers growth

Groupon growth in active customers

Source: Groupon

Groupon spend per average customer

Groupon spend per average customer

Source: Groupon

Groupon reported fairly solid growth in average spend per consumer, which increased by $8 globally on a sequential basis. The number of customers increased 24% year-over-year. The combined outcome of higher average spends and an increase in active customers drove significant sales growth in the most recent quarter. In fact consolidated gross billings grew 38.7% year-over-year, which is indicative of future revenue. After all billings is deferred revenue. The revenue is deferred, because revenue recognition only happens after Groupon’s service has been rendered, which happens after a period in which various promotions come to an end. It’s a useful leading indicator, because it indicates that Groupon’s revenue growth will accelerate.

Groupon is upbeat on its future growth prospects, as it believes that it can adjust its promotional activity to drive higher volume. According to Eric Lefkofsky:

To help people discover our deals, we need to improve the process of searching for them in our marketplace. It’s way too hard today. We estimate that we represent about 5% of an average merchant’s annual volume, and yet almost 30% of all Internet users in North America have a Groupon account. That means millions of people are paying full price today at merchants that are running Groupon deals, when they could easily open up our app prior to visiting that merchant and save up to 50% of whatever they are buying.

The positive sentiment in Groupon stock is driven by potential organic growth in the number of deals that Groupon can market. While user growth is impressive, an increase in purchased deals per user can drive significant sales growth going forward. Admittedly, Groupon has the opportunity to further streamline the process by integrating its service with Apple’s mobile payment technology, and by making the process of choosing deals significantly easier. The company mentions that it’s heavily focused on search engine optimization, and contextual mobile notifications.

Assuming various methods to drive billings growth continue to drive both earnings and sales growth, sentiment will continue to improve. Admittedly, nothing out of the ordinary popped out in terms of revenue and earnings guidance, but over the next several quarters it’s highly likely that Groupon will have no problem with meeting analyst expectations on the basis of billings growth, and revenue beats.

Alex Cho Alex Cho   on Amigobulls :

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