It has been about a month since the last earnings report for Groupon, Inc. (GRPN - Free Report) . Shares have lost about 5.7% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is GRPN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Groupon delivered better-than-expected first-quarter 2018 results. The company reported non-GAAP earnings of 3 cents per share, which surpassed the Zacks Consensus Estimate of a breakeven.
Revenues of $626.5 million declined 7% on a year-over-year basis (11% at FX neutral) but outpaced the Zacks Consensus Estimate of $605 million.
The company has been trying to reduce dependence on goods deals and is shifting focus toward local services market. This is because local services market is a high margin business while goods deals bring in high revenues but smaller margins.
The transition is hurting the company’s revenues as reflected in first-quarter results.
Region-wise, North America revenues decreased 16.9% from the year-ago quarter while International revenues increased 16.5% year over year.
Billings from North America were down 11.4% year over year. However, international billings increased 11.4%.
North America local gross billings of $543 million slipped 7.6%. Local revenues of $187.4 million declined 6.5% from the year-ago quarter. Also, goods billings slumped and revenues fell 20.2% and 26.4% to $209.5 million and $185.8 million, respectively.
As of Mar 31, 2018, the company had approximately 32.6 million active customers globally. During the quarter, the company continued to add new customers in North America. The company recently unveiled American Express to boost card linked offers platform and customer experiences.
International local gross billings of $217.3 million grew 13.6%. Local revenues of $74.6 million grew 17.3% from the year-ago quarter. Moreover, goods billings increased 9.6% to $163.4 million and revenues climbed 17.2% to $147.3 million.
As of Mar 31, 2018, the company had approximately 17 million active customers internationally.
Management noted that its new offering Groupon+ has been well accepted as the company is enhancing customer experience by investing in voucherless initiatives. This is expected to be a catalyst going ahead. It is currently operating in more than 25 markets.
The company’s partnership with Grubhub (GRUB - Research Report) enables customers to order food delivery for more than 80,000 restaurant partners of Grubhub via Groupon platform.
Prioritizing its ‘vision of building the daily habit in local’, the company has entered into strategic collaborations with companies like ParkWhiz and Comcast Corporation. These deals are helping the company to enhance its product features, adding functionality to the application and enriching user experience.
Further, partnerships with Gold Star, Expedia, Live Nation, Viator and Fanxchange are helping Groupon to cater to just about any local need, consequently aiding the company to rapidly penetrate the market.
With a proper mix of products along with accelerating consumer activities, management anticipates growth going forward.
Operating Details and Cash Flow
Gross profit was during the quarter came in at $324.9 million, up 5% (1% FX at FX neutral). Internationally, gross profit surged 19% (5% on an Fx-neutral basis). North America gross profit however dipped 1% to $219 million.
Continued focus on execution of its product, supply, and marketing initiatives were positives in the quarter.
Successful implementation of the company’s streamlining activities was evident from the 17% year-over-year increase in adjusted EBITDA, which totaled $52.6 million.
Global units sold during the quarter declined 7% year over year to 42.4 million. North America units were down 11% year over year, primarily due to the divestiture of certain OrderUp assets and investments in scaling Groupon+.
The company exited the quarter with cash and cash equivalents of $725.9 million. Net cash used during the quarter came in at $119.7 million. Free cash flow was ($139.9) million in the first quarter.
For second-quarter, the company expects revenues to be in the range of $630 million to $640 million. Gross Profit is expected to be around $325 million.
For full year 2018, Groupon raised its adjusted EBITDA guidance. The company now expects adjusted EBITDA to be around $280 million and $290 million (previously $260-$270 million).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.
At this time, GRPN has a subpar Growth Score of D. Its Momentum is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise GRPN has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.