Shares of Groupon (NASDAQ:GRPN) are expected to rise up to 68% or $16 from Thursday's close of $9.50. Groupon's highly anticipated Q3 financial report revealed its EPS beat expectations by $0.02 as Groupon saw continued growth and announced a deal to acquire "Ticket Monster."
Healthy revenue growth and a bright future in mobile e-commerce is driving Groupon's performance.
- Q3 2013 EPS $0.02 GAAP
- Gross billings growth of 10% year-over-year
- 24% growth in North America
- 12% growth in EMEA (Europe, Middle East, and Africa)
- Local billings accelerated from 5% year-over-year growth in Q1 to 9% in Q2 to 13% Q3
- Q4 2013 revenue guidance between $690 and $740 million
- Q4 2013 EPS $0.02 GAAP
- 60 million app downloads
- September mobile transactions exceeded 40% globally
- The first large scale e-commerce company in North America that is predominantly mobile
The chart below indicates strong expectations for Groupon's shares to increase from their present closing value of $9.50 per share. If Groupon continues to execute and reports better than expected results in Q4 2013, shares could reach the $16 target in Q1 2014. Conservatively, I expect to see between $14 to $15 before Christmas.
Acquisition Of Ticket Monster
During the Q3 conference call CFO Jason Child highlighted Groupon's deal to acquire Ticket Monster and the company's performance. Ticket Monster's year-over-year growth rate and annual billings are highly impressive. The purchase price of $100 million cash and $160 million in stock makes this acquisition the "deal of the day." Child comments:
TMON [Ticket Monster] has consistently seen year-over-year billings growth in excess of 50% and has annual billings of more than $800 million today.
There exist a threefold benefit for Groupon in acquiring Ticket Monster:
- Ticket Monster is a cash cow generating over $800 million in gross billings. The synergy between these two companies and the current growth rate of 50% could cause billings to increase to $1 billion over the next few quarters for TMON -- do the math. Growth is off the chain and the market is fertile.
- The acquisition lessens the competition from Living Social (the seller) while providing Groupon with new sustainable growing revenues.
- The fact that Living Social is willing to receive $160 million of Groupon's stock in lieu of cash is a positive indication they anticipate Groupon's shares trading much higher. Remember, insiders make decisions based on esoteric knowledge.
Groupon is continuing their repurchase program and thus far repurchased 770,900 shares at an average price of $11.67. Going forward, the company plans to repurchase an additional $291 million in stock. Logic dictates that when a company is willing to pay $11.67 per share, it can only mean they see the stock trading much higher. Shareholders have a strong investment partner with deep pockets in Groupon's repurchase program. You could not ask for better sponsorship at $11.67. I will not be surprised to learn at the end of Q4 that Groupon was repurchasing shares this past month in anticipation of the run up. Here's what CFO Child said during the conference call:
And finally, we've repurchased 770,900 shares of Class A common stock in the quarter at an average price of $11.67 per share for an aggregate purchase price of $9 million.
When a company announces it will repurchase its own shares, many investors take a wait and see attitude. But when you see the company buying at $11.67, there is a strong probability they see something on the horizon that management determined will drive the price higher. I believe it was Investor's Business Daily's founder, William O'Neil, that first said:
There are many reasons why an insider [or company] sells shares ... but there is only one reason why they buy -- they believe the stock price is going higher. (paraphrased)
Navigating The Charts
The chart below forecast important technical indicators. Keep a close watch on the $12.65 breakout. The $15 price target is where I believe we are headed near term. The $16 price target called by Deutsche Bank could be reached as early as Q1 2014, provided Groupon executes better than expected on their conservative Q4 2013 forecast.
With the holiday season here and the economy starting to recover, Groupon is well positioned to exploit the increased consumer shopping and dining out that is so prevalent during Q4.
Groupon's rapid transition into mobile e-commerce is changing the way consumers "do Groupon." Instead of going to your laptop and searching your email for a Groupon coupon for lunch or dinner, that unfortunately has expired, tap your phone's G-app and discover a valid coupon waiting for you to purchase in seconds. Within minutes you are tweeting "just scored a 1/2 price steak dinner on my G-app!" Online based companies could see their coupons go viral in hours.
It has been said:
"If you don't know where you are going, any road will lead you there."
Groupon's CEO knows exactly where he's taking Groupon and shared that vision:
Our vision is to make Groupon the place you start when you want to buy just about anything, anywhere, anytime. We want people checking Groupon first before they buy something. Because with the world's largest marketplace the deals, everything we offer is personalized to provide unbeatable value.