Groupon is following some impressive strategies to improve its bottom line performance.
Groupon's investments in mobile are reaping results.
Groupon is bolstering its product portfolio, and this will help it attract more merchants.
Groupon has a solid balance sheet, and its bottom line is expected to grow at a good pace in the future.
Groupon (NASDAQ:GRPN) is under tremendous pressure this year. Shares of the daily deals site have dropped more than 40%, as investors have focused more on its declining profits rather than tremendous revenue growth. As such, despite reporting a 26% increase in revenue in the first quarter, Groupon has failed to make a comeback. Its adjusted EBITDA of $40.3 million in the first quarter was lower than $71.9 million in the prior-year period. However, it cannot be denied that the company is making good progress.
There's a possibility that Groupon can bounce back going forward, which is why it might be a good buy on the pullback. Let's take a closer look at Groupon's prospects and see why a turnaround is in sight.
Groupon has made good progress this year as far as the business is concerned. Its local marketplace has over 200,000 deals that are popular among customers. In addition, the mobile app of Groupon has helped it become a large-scale e-commerce company with a predominant mobile presence.
The company has set three key objectives for 2014. First, it is looking to reaccelerate its local growth in North America and abroad. Second, it is trying to improve the gross margin and operating efficiency. Finally, Groupon is trying to achieve stability in its international operations and reduce its losses internationally to generate positive segment operating income by the end of the year. In addition, Groupon expects its North American local billings growth to multiply in the back half of this year as its marketplace continues to gain traction.
Groupon is trying to change the perception about its business. The company is trying to project itself as not just a daily deals site, but a full marketplace that customers can access from anywhere, anytime. But, this transition has led to a minor slowdown in the business, although it places Groupon on the path for long-term growth. Moreover, the company is planning to regionalize its operations to reduce SG&A and improve operating efficiency.
Terrific growth in mobile
Groupon has made good progress as far as its key strategic initiatives are concerned. It saw tremendous mobile growth in the first quarter. In March, its global mobile business, in terms of transactions, grew over 400 basis points to 54%.
Further, more than 10 million people downloaded its apps worldwide in the quarter, taking the total app downloads to over 80 million. Groupon added approximately 6.9 million mobile customers globally in the first quarter. Excluding acquisitions, the first quarter was one of its strongest customer activation quarters in over a year, with 1.3 million customers added.
Improving the product portfolio
Groupon has made substantial investments in point-of-sale and payment technologies in the last few years, and is providing its merchants with a suite of tools that connect them to its community of over 200 million subscribers and over 51 million active customers in 2014. The e-commerce company has built a marketplace, and has stocked its shelves with deals that its customers wish to buy when they are on the lookout for restaurants, spas, live events, hotels, products, and so on.
The company now needs to enhance customer awareness and make sure that people check Groupon first while making buying decisions, so as to make Groupon an integral part of their daily lives. In order to achieve this, a complete re-engineering of the company is required from being singularly focused on daily deals.
Groupon started integrating technology into the business to help it increase supply, while also bolstering the sales force that is now over 5,000 people strong. At the same time, Groupon is focused on attracting merchants to its platform.
The company is also gaining traction with its core e-mail business, apart from being focused on building a local marketplace. It sends over 250 million e-mails every day to its subscribers. The company plans to continue innovating to push its business throughout 2014 by introducing technology like its new widget-based e-mail system called Mindstorm, that makes what customers see in their e-mails more relevant and personalized.
Meanwhile, Groupon is also moving into newer areas. Groupon is working with SolarCity (NASDAQ:SCTY) to offer deals on solar systems in the Groupon marketplace. This is expected to allow customers benefit from additional savings with a deal from Groupon by paying $1 for $400 off home solar power, for a limited time.
Thus, on the back of such impressive moves, Groupon looks well-placed to turn its fortunes around, and a solid financial position and fundamentals will help it achieve the same. The important thing is that Groupon is debt-free, and a cash balance of $1 billion gives it the luxury to continue investing in various moves to continue improving.
In addition, at a forward P/E ratio of 25, Groupon looks like a bargain, especially considering that its earnings are expected to grow at a terrific rate of 27% for the next five years. As such, investors should definitely consider Groupon for their portfolio, as it looks like a solid turnaround candidate.
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.