Why Is Groupon (GRPN) Down 24.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Groupon (GRPN). Shares have lost about 24.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Groupon Earnings & Revenues Lag Estimates in Q2

Groupon reported second-quarter 2019 non-GAAP earnings of 1 cent per share, missing the Zacks Consensus Estimate by a penny. The figure also declined from 2 cents reported in the year-ago quarter.

Revenues of $532.6 million lagged the Zacks Consensus Estimate of $552 million and declined 14% on a year-over-year basis (12% at FX neutral). The year-over-year decline can primarily be attributed to lower customer and 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. However, the transition continues to hurt the company’s revenues as evident from second-quarter results.

Quarter Details

Service revenues (52.1% of total revenues) declined 6.1% year over year to $277.6 million. Product (47.9%) revenues slumped 20.8% to $254.9 million.

Region-wise, North America revenues (61% of total revenues) decreased 14.6% from the year-ago quarter to $324.7 million. Meanwhile, International revenues (39% of total revenues) decreased 12.3% (down 7% excluding foreign exchange effect) year over year to $207.9 million.

Billings

In the second quarter, billings from North America were $735.2 million, down 12.3% year over year. Moreover, international billings declined 9.4% (down 4% excluding foreign exchange effect) to $385.7 million.

North America local gross billings came in at $503.8 million, slumping 8.1%. Local revenues of $177.1 million declined 4.7% from the year-ago quarter. Further, goods billings and revenues fell 25% and 24.7% to $147.4 million and $131.5 million, respectively.

International local gross billings were $203.5 million, increasing 0.1% (up 5.9% excluding foreign exchange effect). Local revenues of $69.92 million declined 2% from the year-ago quarter (up 3.7% excluding foreign exchange effect). However, goods billings dropped 20.1% year over year to $138.9 million. Meanwhile, revenues decreased 16.8% to $129.8 million.

Marketplaces

Groupon's online marketplaces have been categorized under three heads – Local, Goods and Travel. Consolidated revenues from Local (46.4% of total revenues), Travel (4.5%) and Goods (49.1%) declined 4%, 18.2% and 21%, respectively, from the year-ago quarter.

Gross profit from Local decreased 4% year over year and came in at $223.5 million, while Travel marketplaces gross profit declined 20% to $20.2 million. Meanwhile, the same in Goods market fell 26.3% to $48.5 million.

Other Metrics

As of Jun 30, 2019, Groupon had approximately 17.6 million active customers internationally compared with 17.5 million at the end of the previous quarter.

As of Jun 30, 2019, the company had approximately 28.6 million active customers based in North America compared with 29.6 million at the end of the previous quarter.

The company is focused on initiatives to bolster card linked offers platform in order to enrich customer experience.

Operating Details

Gross profit during the second quarter came in at $292.1 million, down 9.8% (down 8% at FX neutral). Internationally, gross profit decreased 10.3% (down 4.9% on an FX-neutral basis) to $93.5 million. Moreover, North America gross profit dropped 9.5% to $198.6 million.

Adjusted EBITDA decreased 17.3% to $46.5 million.

Global units sold during the reported quarter declined 12% year over year to 35.3 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 up 1% year over year.

SG&A expenses decreased 28.4% year over year to $210.3 million in the reported quarter. The decrease can primarily be attributed to continuous efficiency efforts and lower compensation expenses.

Marketing expenses declined 6% to $88.9 million primarily owing to optimizing spend with regard to high value customers and lower offline marketing expense in North America.

Operating loss from continuous operation came in at $37.6 million compared with loss of $92.3 million reported in the year-ago-quarter.

Balance Sheet & Cash Flow

Groupon exited the quarter ending Jun 30, 2019, with cash and cash equivalents of $596.8 million down from $645.6 million reported at the end of the previous quarter.

Net cash utilized from operations during the quarter came in at $1.2 million, compared with $147.5 million generated in the previous quarter.

The company repurchased 4.2 million shares worth $15 million during the reported 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 estimates review. The consensus estimate has shifted -233.33% due to these changes.

VGM Scores

Currently, Groupon has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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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