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Still No Light at the End of the Tunnel for Groupon?

Posted on Wednesday, Nov 12th 2014

Local deals site Groupon (Nasdaq: GRPN) is making very slow progress in turning themselves around. Nearly two years since they fired their founder Andrew Mason, the stock hasn’t fared significantly better. The company continues to try new ways to reignite the earlier growth and deliver the financial performance the market desires.

Groupon’s Financials
Groupon’s second quarter revenues grew 27% over the year to $757.1 million, exceeding the market’s expectations of $748.8 million. Adjusted EPS of $0.03 was also ahead of the Street’s projections of $0.01 for the quarter.

During the quarter, Groupon saw gross billings grow 39% to $1.86 billion. North America billings improved 16% and that of EMEA grew 10% over the year. They reported an impressive 155% in billings from the Rest of World, but that was attributed to the acquisition of Ticket Monster last year. The increase in gross billings translated to a growth of 16% in North American revenues, 56% in EMEA revenues and 26% in revenues from the Rest of World.

Among operating metrics, Groupon’s sales of vouchers and products before cancellations and refunds improved 92% over the year to 88 million. They ended the quarter with average active deals growing 25% sequentially to 300,000. North American active deals accounted for more than 120,000 at the end of the quarter. Active customers for the site improved 24% to 52.7 million as of September 2014. Of this, 23.5 million users were in North America, 14.9 million in EMEA, and 14.3 million in Rest of World. Groupon also saw an increase in trailing twelve month billings per average active customer that increased marginally to $149 during the quarter compared with $141 a quarter ago. Mobile transactions accounted for more than half of their business and they reported over 100 million app downloads.

For the current quarter, Groupon forecast revenues of $875 million-$925 million with an EPS of $0.02-$0.04. The market was looking for revenues of $926.3 million for the quarter with an EPS of $0.07.

Groupon’s Strategy
Groupon has highlighted three key focus areas for growth for the future. First, they are interested in reaccelerating local growth in their markets, especially in North America. Second, they want to improve the gross margins and operating efficiency of their goods business and finally, they want to achieve stability in their international markets and reduce losses in the Rest of the World operations.

Earlier last month, they released Groupon Pages, a listing of more than 7 million local merchants in the US. Groupon Pages includes merchant information along with over 20 million validated ratings and tips from real customers in reference to local businesses. Additionally, merchants can use Pages as part of their online presence tool and connect with more customers by releasing exclusive offers, everyday specials, and other promotions.

Groupon has also been increasing their mobile footprint. They recently released a new Groupon Getaways travel discovery app that comes with enhanced travel search features. The app claims to provide their users with access to more than 25,000 destinations in a fast and simple manner. It comes with search criteria such as browsing by Theme, same day bookings, searching for a deal within a map area and access to exclusive travel deals including flash sales that take as offer as much as a 60% discount on hotels and vacation packages.

They are also embracing mobile payment capabilities and announced integration with Apple Pay that will let users make secure purchases from the Groupon app on iPhone 6 and iPhone 6 Plus.

It appears that Groupon may be mulling over putting Ticket Monster back on sale. Groupon bought the South Korean company last year for an estimated $260 million. During the recent earnings call, Groupon informed how they had hired financial experts to advise them on the financing and strategic options for the Ticket Monster group.

Groupon’s stock is trading at $7.80 with a market capitalization of $5.23 billion. It touched a 52-week high of $12.42 in January this year and had fallen to a 52-week low of $5.18 in May this year.

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