Groupon (NASDAQ:GRPN) has lost almost half of its value since the start of the year. The stock had been on a downward trend since the start of the year - however, since May, it looks like the stock has established a range - Groupon has been trading between $5-6.5 over the last six weeks. The company has been trying hard to increase its revenues, to some extent, Groupon has been successful in its efforts, but the increase has not been enough to turn the business to profitability. In this article, we will discuss the company's current financial position, its fresh competition, and where it is headed. Further, we will look into a few interesting moves by the insiders.
Priceline increases Competition
Although the stocks of both Groupon and Yelp (NYSE:YELP) surged after Priceline (NASDAQ:PCLN) announced its acquisition of OpenTable, it is a threat to the companies rather than an opportunity. OpenTable is an online restaurant reservation business, which would complement the existing business of Priceline. Groupon, on the other hand, has its own restaurant reservation service called Groupon Serve. This poses a threat to Groupon's existing market share since Priceline now has a complete hotel business package and can offer people a complete service.
Groupon is spending heavily in order to market its service despite the operating losses. Fortunately, this seems to be paying off since its gross billings showed a robust increase of 29% in the first quarter of 2014. This led to 26% increase in revenues representing a remarkable progress. However, the profitability of the company is still in question which only increased by 2% in the first quarter.
A good thing to be noted in its quarterly financials is that its customers who actually spend on the website are now 9% as compared to those who spend very little or simply surf. It has also managed to reach 200,000 average active deals in North America. Its app is playing an important role in bringing in more business. 54% of its global transactions were made through mobile devices. This percentage has been increasing rapidly which is also demonstrated in the following table.
The company expects its revenues for the second quarter to range from $725 million and $775 million with a positive EBITDA of $45 and 65$ -- EBITDA for the full year is expected to be more than $300 million. Even hitting a positive EBITDA is a milestone for the company, as it has no major interest costs. This means more of its EBITDA will make up for its net profit margin.
Transactions by Insiders
On 13th June, the CEO, CAO and the director of the company sold a significant amount of shares compared to what they held in the first place. The CEO, Eric P. Lefkofsky sold 454,166 shares at an average price of $6.16 and now owns only 31,455 directly. The CAO of Groupon, Brian Steven sold 9,406 shares on the same day at a price of $6.30 per share, and currently owns 4,198 shares. Lastly, the director, Theodore Leonsis sold 19,750 shares at an average price of $6.22 and now owns 810,296 shares. The ratio of the transactions by insiders has been high on the selling side for Groupon over the last few months, and these recent transactions further add to the ratio. Moreover, these transactions create doubt in the minds of the investors about the future of the company as these sales are substantial.
Focusing on the Local Businesses
The company is focusing on the local businesses in order to increase its revenue growth. In order to increase the presence in the local businesses, the company will have to increase its sales staff and invest more on the sales team. As a result, the operating expenses will increase over the next few months. In order to be profitable, the company will need to grow revenue at a higher pace than its expense on the sales efforts. Otherwise, we might see Groupon's profitability suffer over the next two-three quarters.
The trend in the price over the last six months has made Groupon an attractively priced stock. The company continues to focus on the long-term revenue growth and the focus on the local businesses will allow Groupon to enhance its revenues. Furthermore, the increase in bookings, spending on the website and the use of the mobile app shows that the company is on the right track, and the current price gives an attractive entry point.
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Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.