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Groupon (GRPN) Posts Narrower-than-Expected Loss in Q3
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Groupon Inc. (GRPN - Free Report) reported third-quarter 2016 adjusted loss (including stock-based compensation and tax impact) of 6 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 8 cents. GAAP loss was 7 cents per share, much wider than the year-ago loss of 4 cents.
Shares plunged 11% in after-hour trading on Oct 26.
Revenues
Revenues of $720.5 million beat the Zacks Consensus Estimate of $708 million and inched up 1% on a year-over-year basis. Direct revenues (57% of total revenues) increased 6%, while Third Party & other (43% of total revenue) declined 5% from the year-ago quarter.
Region-wise, revenues from North America increased 4.2% from the year-ago quarter, while that from EMEA and the Rest of World (Asia-Pacific and Latin America) declined 1.4% and 19.4%, respectively.
On a constant-currency basis, Rest of World (Asia-Pacific and Latin America) revenues declined 15.5% on a year-over-year basis, while EMEA remained flat.
Gross billings dipped 2.44% year over year to $1.43 billion in the quarter. Region-wise, billings from North America were up 6%. However, billings from EMEA and the Rest of World declined 10.5% and 23.7%, respectively.
On a same-country basis, gross billings grew 1%, excluding the unfavorable impact of foreign exchange rates.
North America local gross billings grew 10% to $531 million, while North America local revenue of $176 million was up 8% in the reported quarter.
During the quarter, Groupon reduced its country presence to 26 from 47. The company plans to finally operate in 15 countries in Europe and North America. The 11 countries not included in the plan on a trailing 12-month basis generated $140 million of revenues and an adjusted EBITDA loss of approximately $10 million.
As of Sep 30, 2016, Groupon had approximately 29.1 million active customers in North America. The company added nearly 1.2 million new customers in the quarter. Total active customers were 50.8 million.
At the end of the quarter, on an average, active deals were about 800K globally, while those in North America rose to 475K.
Operating Details
Gross margin contracted 250 basis points (bps) on a year-over-year basis to 43.6% in the quarter. The decline was primarily attribute to lower Direct gross margin, which fell 170 bps, partially offset by 110 bps increase in Third Party & other gross margin.
North America gross profit increased 5% while that from EMEA and the Rest of World were down a respective 18% and 20%. North America shopping gross margin was 10.6%, down 160 bps due to pricing.
Adjusted EBITDA margin contracted 340 bps to 4.5%, reflecting higher investments in customer acquisition.
Groupon’s operating expenses dropped 12% year over year to $341.4 million due to lower selling, general & administrative expense (SG&A), which was down 22.3%, reflecting the benefits of streamlined operations and a lower headcount.
Marketing expenses surged 42.7% from the year-ago quarter due to investments on customer acquisition both online and off-line. In North America, most of the online marketing spending was toward display, paid search and app download.
Nevertheless, Groupon reported operating loss of $26.7 million, compared with a loss of $70.4 million reported in the year-ago quarter.
Region-wise, North America operating income was $0.2 million compared with the year-ago quarter loss of $30.9 million. EMEA reported operating income of $3.9 million, almost flat on a year-over-year basis. In the Rest of World, the company reported operating loss of $4.7 million, compared with $6.9 million in the year-ago quarter.
LivingSocial Acquisition
Groupon recently entered into an agreement to acquire all of the outstanding shares of LivingSocial Inc. The acquisition is expected to close by early November. The acquisition will contribute approximately $15 million of revenue and $2 million to $3 million of adjusted EBITDA losses per quarter.
Balance Sheet and Cash Flow
As of Sep 30, Groupon had cash and cash equivalents worth $689.7 million, compared with $780.1 million as on Jun 30, 2016.
Cash used in operating activities in the quarter was $40.8 million in contrast to cash outflow of $54 million reported in the year-ago quarter.
Free cash outflow was $53.7 million, lower than $70.4 million reported in the previous quarter.
During third-quarter 2016, Groupon repurchased 5,213,778 shares of its Class A common stock for an aggregate purchase price of $24.6 million.
Outlook
For full-year 2016, Groupon increased its revenue guidance to a range of $3.075 billion to $3.150 billion from earlier projection of $3 billion to $3.10 billion.
Adjusted EBITDA for 2016 is now projected to be between $150 million and $165 million, compared with the previous guidance range of $140 million to $160 million.
Groupon expects North America shopping margins to be up on a year-over-year basis in the fourth quarter.
Further, management anticipates generating significant free cash flow in the fourth quarter. For the full year, Groupon continues to expect free cash flow to be about breakeven.
Our Take
Groupon’s new business strategy (with core focus on marketing, international and shopping) appears to be working for the company. Its performance has started to improve since the past few quarters after CEO Rich Williams took the helm.
The company continues to see strength in its customer acquisition and shopping endeavors, aimed at developing its local core business.
Further, the company has been taking a number of strategic initiatives to streamline its operations. Additionally, it has increased its marketing spend, which should boost its business to a great extent in the long run.
However, Groupon is investing quite a bit in the transition, which is expected to affect its near-term financials. Competition from giants like eBay (EBAY - Free Report) and Amazon.com (AMZN - Free Report) and impending lawsuits are other headwinds investors need to watch out for.
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Groupon (GRPN) Posts Narrower-than-Expected Loss in Q3
Groupon Inc. (GRPN - Free Report) reported third-quarter 2016 adjusted loss (including stock-based compensation and tax impact) of 6 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 8 cents. GAAP loss was 7 cents per share, much wider than the year-ago loss of 4 cents.
Shares plunged 11% in after-hour trading on Oct 26.
Revenues
Revenues of $720.5 million beat the Zacks Consensus Estimate of $708 million and inched up 1% on a year-over-year basis. Direct revenues (57% of total revenues) increased 6%, while Third Party & other (43% of total revenue) declined 5% from the year-ago quarter.
Region-wise, revenues from North America increased 4.2% from the year-ago quarter, while that from EMEA and the Rest of World (Asia-Pacific and Latin America) declined 1.4% and 19.4%, respectively.
On a constant-currency basis, Rest of World (Asia-Pacific and Latin America) revenues declined 15.5% on a year-over-year basis, while EMEA remained flat.
GROUPON INC Price, Consensus and EPS Surprise
GROUPON INC Price, Consensus and EPS Surprise | GROUPON INC Quote
Gross billings dipped 2.44% year over year to $1.43 billion in the quarter. Region-wise, billings from North America were up 6%. However, billings from EMEA and the Rest of World declined 10.5% and 23.7%, respectively.
On a same-country basis, gross billings grew 1%, excluding the unfavorable impact of foreign exchange rates.
North America local gross billings grew 10% to $531 million, while North America local revenue of $176 million was up 8% in the reported quarter.
During the quarter, Groupon reduced its country presence to 26 from 47. The company plans to finally operate in 15 countries in Europe and North America. The 11 countries not included in the plan on a trailing 12-month basis generated $140 million of revenues and an adjusted EBITDA loss of approximately $10 million.
As of Sep 30, 2016, Groupon had approximately 29.1 million active customers in North America. The company added nearly 1.2 million new customers in the quarter. Total active customers were 50.8 million.
At the end of the quarter, on an average, active deals were about 800K globally, while those in North America rose to 475K.
Operating Details
Gross margin contracted 250 basis points (bps) on a year-over-year basis to 43.6% in the quarter. The decline was primarily attribute to lower Direct gross margin, which fell 170 bps, partially offset by 110 bps increase in Third Party & other gross margin.
North America gross profit increased 5% while that from EMEA and the Rest of World were down a respective 18% and 20%. North America shopping gross margin was 10.6%, down 160 bps due to pricing.
Adjusted EBITDA margin contracted 340 bps to 4.5%, reflecting higher investments in customer acquisition.
Groupon’s operating expenses dropped 12% year over year to $341.4 million due to lower selling, general & administrative expense (SG&A), which was down 22.3%, reflecting the benefits of streamlined operations and a lower headcount.
Marketing expenses surged 42.7% from the year-ago quarter due to investments on customer acquisition both online and off-line. In North America, most of the online marketing spending was toward display, paid search and app download.
Nevertheless, Groupon reported operating loss of $26.7 million, compared with a loss of $70.4 million reported in the year-ago quarter.
Region-wise, North America operating income was $0.2 million compared with the year-ago quarter loss of $30.9 million. EMEA reported operating income of $3.9 million, almost flat on a year-over-year basis. In the Rest of World, the company reported operating loss of $4.7 million, compared with $6.9 million in the year-ago quarter.
LivingSocial Acquisition
Groupon recently entered into an agreement to acquire all of the outstanding shares of LivingSocial Inc. The acquisition is expected to close by early November. The acquisition will contribute approximately $15 million of revenue and $2 million to $3 million of adjusted EBITDA losses per quarter.
Balance Sheet and Cash Flow
As of Sep 30, Groupon had cash and cash equivalents worth $689.7 million, compared with $780.1 million as on Jun 30, 2016.
Cash used in operating activities in the quarter was $40.8 million in contrast to cash outflow of $54 million reported in the year-ago quarter.
Free cash outflow was $53.7 million, lower than $70.4 million reported in the previous quarter.
During third-quarter 2016, Groupon repurchased 5,213,778 shares of its Class A common stock for an aggregate purchase price of $24.6 million.
Outlook
For full-year 2016, Groupon increased its revenue guidance to a range of $3.075 billion to $3.150 billion from earlier projection of $3 billion to $3.10 billion.
Adjusted EBITDA for 2016 is now projected to be between $150 million and $165 million, compared with the previous guidance range of $140 million to $160 million.
Groupon expects North America shopping margins to be up on a year-over-year basis in the fourth quarter.
Further, management anticipates generating significant free cash flow in the fourth quarter. For the full year, Groupon continues to expect free cash flow to be about breakeven.
Our Take
Groupon’s new business strategy (with core focus on marketing, international and shopping) appears to be working for the company. Its performance has started to improve since the past few quarters after CEO Rich Williams took the helm.
The company continues to see strength in its customer acquisition and shopping endeavors, aimed at developing its local core business.
Further, the company has been taking a number of strategic initiatives to streamline its operations. Additionally, it has increased its marketing spend, which should boost its business to a great extent in the long run.
However, Groupon is investing quite a bit in the transition, which is expected to affect its near-term financials. Competition from giants like eBay (EBAY - Free Report) and Amazon.com (AMZN - Free Report) and impending lawsuits are other headwinds investors need to watch out for.
Zacks Rank & Key Picks
Groupon sports a Zacks Rank #1 (Strong Buy). EVINE Live Inc. (EVLV - Free Report) , which is expected to report on Nov 22, also sports the same rank. You can see the complete list of today’s Zacks #1 Rank stocks here.
Confidential from Zacks
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