Groupon (GRPN) Down 3.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Groupon (GRPN). Shares have lost about 3.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Groupon 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 catalysts.

Groupon Earnings and Revenues Tops Estimates in Q1

Groupon reported first-quarter 2019 non-GAAP earnings of 3 cents per share, which surpassed the Zacks Consensus Estimate of break-even earnings. However, the figure was flat on a year-over-year basis.

Although revenues of $578.4 million declined 8% on a year-over-year basis (5% at FX neutral), it surpassed the Zacks Consensus Estimate of $552 million. The year-over-year decline can primarily be attributed to lower customer traffic.

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 continues to hurt the company’s revenues as evident from first-quarter results.

Quarter Details

Service revenues (49.4% of total revenues) declined 5.3% year over year to $285.8 million. Product (50.6%) revenues slumped 9.9% to $292.6 million in the same period.

Region-wise, North America revenues (61.7% of total revenues) decreased 9.2% from the year-ago quarter to $357.2 million. Meanwhile, International revenues (38.3% of total revenues) decreased 5.2% (up 2.4% excluding foreign exchange effect) year over year to $221.2 million.

Billings

In the first quarter, billings from North America were $769 million, down by 10.1% year over year. Moreover, international billings decreased 7.1% (up 0.2% excluding foreign exchange effect) to $406.9 million.

North America local gross billings came in at $502.3 million, decreasing 7.5%. Local revenues of $180.4 million declined 3.8% from the year-ago quarter. Further, goods billings and revenues fell 16.6% and 15% to $174.6 million and $157.8 million, respectively.

International local gross billings were $207.4 million, decreasing 4.6% (up 2.7% excluding foreign exchange effect). Local revenues of $73.2 million declined 1.9% from the year-ago quarter (up 5.6% excluding foreign exchange effect). However, goods billings dropped 9.7% year over year to $147.6 million. Meanwhile, revenues decreased 5.4% to $139.3 million.

Marketplaces

Groupon's online marketplaces have been categorized under three heads – Local, Goods and Travel. Consolidated revenues from Local (43.8% of total revenues), Travel (4.8%) and Goods (51.4%) declined 3.2%, 12.2% and 10.8%, respectively, from the year-ago quarter.

Gross profit from Local decreased 2.9% year over year and came in at $230.1 million, while Travel marketplaces gross profit declined 12.5% to $23.3 million. Meanwhile, the same in Goods market declined 14.1% to $52.6 million.

Other Metrics

As of Mar 31, 2019, Groupon had approximately 17.5 million active customers internationally compared with 17.6 million at the end of the previous quarter.

As of Mar 31, 2019, the company had approximately 29.6 million active customers based in North America compared with 30.6 million at the end of the previous quarter.

The company continues to take initiatives to bolster card linked offers platform and enrich customer experience.

Operating Details

Gross profit during the first quarter came in at $306 million, down 6% (3% at FX neutral). Internationally, gross profit decreased 9% (91% on an FX-neutral basis) to $96.2 million. However, North America gross profit dropped 4% to $209.8 million.

Adjusted EBITDA decreased marginally 10.7% totaling $47 million.

Global units sold during the reported quarter declined 12% year over year to 37.2 million, primarily owing to lower traffic. North America units were down 18% year over year, primarily on account of the divestiture of certain OrderUp assets, continued investments in scaling Groupon+ and maximization of long-term gross profit. However, International units were down 2% year over year.

SG&A expenses decreased 5.4% year over year to $210.4 million in the reported quarter. The decrease can primarily be attributed to continuous efficiency efforts and lower compensation expenses.

Marketing expenses declined 6% to $93.4 million primarily due to optimizing spend in regard to high value customers and lower offline marketing expense in North America.

Operating loss from continuous operation came in at $41.2 million compared with loss of $2.8 million reported in the year-ago –quarter.

Balance Sheet & Cash Flow

Groupon exited the quarter ending Mar 31, 2019, with cash and cash equivalents of $645.6 million down from $841 million reported at the end of the previous quarter.

Net cash utilized from operations during the quarter came in at $147.5 million, compared with $323.8 million generated in the previous quarter.

Guidance

For full year 2019, Groupon expects adjusted EBITDA outlook to be roughly $270 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.29% due to these changes.

VGM Scores

At this time, Groupon has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Groupon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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