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Groupon on the Rebound?

Posted on Monday, May 13th 2013

After reporting results that forced their CEO to quit, daily deals market leader, Groupon (Nasdaq:GRPN) seems to have figured its way out. Its stock price is on the rise, but it still is significantly short of their $20 IPO list price. Like the market, I remain skeptical about the company’s future and would like to see it perform more consistently on a proven business model before I make a favorable judgment about them.

Groupon’s Financials
Groupon’s Q1 revenues grew 8% over the year to $601.4 million, surpassing the Street’s estimates of $591 million. They ended the quarter with an adjusted EPS of $0.03, in line with market’s projections.

Revenues from international markets continued to fall and reported an 18% decline over the year to $261.8 million. Revenues within the U.S. grew 42% over the year to $339.6 million. Traction of their mobile apps continued to improve. Sales through mobile devices in the U.S. grew to 45% of their total sales compared with 30% a year ago. The active customer base increased 13% to 41.7 million for the quarter spread across the 48 countries that they are present in.

Groupon plans to continue to invest sales and marketing initiatives during the coming quarters, suggesting weak revenues and margins. For the current quarter, they projected revenues of $575 million-$625 million, compared with the Street’s projections of $616 million.

Groupon’s New Management’s Focus
Groupon still has not named a clear CEO after Mason’s departure last February. But together, their two co-CEOs, Eric Levkofsky and Ted Leonsis, seem to have figured out ways to restart their growth. During the last few months, Groupon has reduced the spamming of mail boxes that was being conducted, and their consumers receive fewer but more relevant e-mails instead. Groupon is focusing on expansion through search business, converting themselves from a “push to pull” organization. Instead of pushing deals to their subscribers, Groupon is now delivering results based on user searches. The move is seeing strong positive results due to the increased use of mobile devices. However, Groupon will need local dealers to continue to offer their deals for a longer period to make search enabled deals more relevant.

In addition, Groupon is also working on several other initiatives. Recently, they released their personalized algorithm, SmartDeals, in markets of the U.K., Italy, Spain, France, the Netherlands and Brazil. They also deployed Coffee, their return on investment calculator for merchants, in all the countries they operate in. To better manage their merchants, they rolled out their lead management system in over 35 countries. Through the tool, they are able to connect and communicate better with their merchants. They also released their capacity management system, Deal Wizard, in Europe that helps their sales team estimate deal capacity.

Groupon’s stock is trading at $6.25 with a market capitalization of $4.12 billion. It touched a 52-week high of $14.93 in May 2012.

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