- Strong results are a sign of better things to come.
- The fallen price of Groupon makes it an ideal acquisition candidate.
- Groupon has also been upgraded by many analysts.
- Groupon has a lot of room to grow, making it a good buy.
Groupon (NASDAQ:GRPN) has been reporting solid growth in the business. The company's results have been outstanding of late as its service is gaining more traction. A look at Groupon's results clearly reveals why it will prove to be a good investment for the future, especially considering that it has lost 40% of its value so far this calendar year. Let's take a closer look at Groupon's results and see how it is positioned for the long run.
Results are strong
Groupon reported first-quarter revenue of $757.6 million, up 26% year-over-year, and beat the consensus estimate of $734 million. The company posted a loss of $0.04 per share for the quarter, while the consensus was for $0.07. The gross margin decreased from 63.0% to 50.9% in the quarter, while the adjusted earnings were $40.3 million, as compared to $71.9 million in the year-ago quarter. The operating expenses increased 12.9% year over year to $403.9 million, while gross billings came in at $1.82 billion, up 29% year-over-year.
Groupon expects its second-quarter revenue to come in between $725 million and $775 million, while adjusted earnings are expected between a breakeven and $0.02 per share. The company expects EBITDA in the range of $45 to $65 million for the quarter, while for the full fiscal 2014, it is expected to be $300 million.
Strong growth in key metrics
The company's active customers increased 24% year over year in the previous quarter to 51.8 million, consisting of 21.8 million in North America, 14.5 million in EMEA, and 15.5 million in the rest of the world. Groupon has been doing very well in its mobile segment. More than 10 million people went on to download Groupon's mobile app during the quarter, taking total app downloads to over 80 million. Regarding transactions, its global mobile business grew over 400 basis points to 54%. Groupon added approximately 6.9 million mobile customers globally in the first quarter.
Following the acquisition of OpenTable (NASDAQ:OPEN) by Priceline (NASDAQ:PCLN), investors have started to hope that an acquisition is in cards for the likes of Yelp and Groupon. While I don't think any company will acquire Yelp, because of its overly-inflated valuation, I do believe Groupon is a realistic acquisition target for the likes of Google (NASDAQ:GOOG) (NASDAQ:GOOGL).
Groupon's shares have performed horribly in the past few months. The company has lost half its value and this might just be the ideal time for Google to acquire Groupon on a cut-price valuation. With a P/S ratio of just over 1.6, Groupon is fairly cheap, and it will not have much problem integrating it into its Google Offers business, which is Groupon's direct competitor. This deal would be a win-win situation for both the companies as it will give rise to cost synergies, which the companies would otherwise spend on outdoing each other.
Better than others
Groupon has done tremendously well as compared to other online retailing giants. While Amazon's (NASDAQ:AMZN) primary merchandise business grew by 27%, year over year and eBay's (NASDAQ:EBAY) enabled commerce volume increased by 24%, Groupon's goods business increased by more than 100%. Size differences aside, the very first thing that makes Groupon's turnaround a good bet is the company's faster growth against both Amazon and eBay.
Groupon's daily deals that made the company all the more famous are likely to include a little help from the tech giant Apple (NASDAQ:AAPL). However, Groupon now is trying to recover from the financial troubles that it has been experiencing lately, and its recently launched Gnome merchant software ecosystem could help it in that effort. Moreover, the company's strategy to leverage the attractive nature of the iPad Mini makes this service more evoking.
Piper Jaffray's analyst Gene Munster recently reiterated a buy rating on Groupon and gave it a price target of $16. Munster said:
We remain buyers of GRPN. Our proprietary deal tracking has showed the number of deals available on Groupon steadily increasing since Oct-13, when we began this analyses. We view our findings as confirmation of the longer term trend of Groupon increasing its deal density, which moves the company closer to its goal of building the leading local deal marketplace. This is different than Groupon's historical push-email business, moving toward a pull model driven by consumer demand.
Separately, in the Mar-14 quarter, Groupon reported 200k deals on the network, up from 140k in the Dec-13 quarter. We expect that number will increase to 500k deals globally in 3-4 years, suggesting about 30% a year growth in the number of deals. Groupon does not disclose the percentage of business from the pull marketplace, but reported 9% of total traffic in North America came from search (pull marketplace).
Another firm that rates Groupon a buy is B. Riley. Groupon's shares has been inching up ever since B. Riley upgraded it from "neutral" to "buy" and gave it a price target of $9.50. B. Riley's analyst Sameet Sinha believes that Groupon's management can deliver on their promises and expects operational improvements to propel organic growth and margin expansion in the near future.
Groupon has a lot of positives to offer. It should continue growing as a result of its mobile moves and new features. The company has been doing well, and being down 40% this year, it might make for a good investment at depressed levels.