Although shares of daily deals site Groupon (NASDAQ:GRPN) are down more than 45% in 2014, a closer look at the company's fundamentals, balance sheet, and terrific growth make it an enticing prospect. Groupon is posting rapid growth in revenue, and its user metrics are also growing at a robust pace. For example, in the first quarter, its gross billings increased about 29% year over year to $1.82 billion. Also, its mobile business saw solid adoption, as more than 10 million applications were downloaded during the first quarter, while its mobile revenue grew to 54% of the overall business.
While these moves look impressive, Groupon's valuation and balance sheet make it even more attractive. Since Groupon is still incurring a loss on a GAAP basis, it doesn't have a trailing P/E metric. However, its forward P/E looks impressive at 25, especially considering that its bottom line is expected to improve at an annual run rate of 27% for the next five years. Additionally, its sales are expected to grow at a tremendous rate as well, with analysts expecting growth of 24% in the current fiscal year.
On the other hand, Groupon has a rock-solid balance sheet. It doesn't have any debt, and its cash position is strong at $1.04 billion. In addition, Groupon's cash flow generation also looks impressive. In the past year, the company has generated $189 million in operating cash flow and $250 million in levered cash flow.
Quite clearly, Groupon's fundamentals are quite strong, and coupled with the company's smart business strategies, it could be a good buy on the pullback.
Aggressive growth moves
Groupon is making aggressive investments in marketing and order discounts in local and international businesses. This is why the company's adjusted EBITDA in the previous quarter was down on an year-over-year basis. But, these investments are expected to deliver long-term growth, and aid the company's revenue improvement.
Groupon is concentrating on three aspects to improve its performance. It is looking to accelerate its local growth in North America and abroad, improve the gross margin and operational efficiency of its goods business, and achieve stability in its international operations. In addition, the company is trying to provide better service through initiatives such as drop shipping, increasing unit per order, changing its free shipping threshold from $19.99 to $24.99, and shifting more fulfillments to its own distribution center in Kentucky.
Attracting more customers
Besides, Groupon has also started selling other consumer goods in bulk through its e-commerce platform. Also, its new service Groupon Basics is driving growth as it allows the consumer to stock up more than 100 household, personal care, health and wellness, and grocery items. As reported on Engadget:
The new effort -- appropriately called Basics -- allows you to stock up on over 100 household, hygiene and health products from companies like Gillette, Dove and Burt's Bees. To sweeten the deal(s), all purchases made through the new channel will earn 5 percent back in Groupon Bucks for future use. Right now, the service is only available in the continental US, but carts that tally over $25 will ship for free. As you might expect, options are a bit limited at launch, but the company says more options are on the way -- including grocery items.
Moves such as these should help Groupon to bring more shoppers into its fold, which will ultimately lead to growth in its advertiser base. Moreover, Groupon expects its billing growth to touch 25% this year driven by such initiatives.
In addition, Groupon continues to offer discounts to attract consumers and to expand its sales. It has also started offering in-store coupons from national retailers such as Macy's (NYSE:M) and Staples (NASDAQ:SPLS). Also, it has started running TV commercials in its top six markets, including Atlanta and San Francisco, to make consumers aware of its services when they want to buy anything, anytime, and anywhere with added service offerings such as product sales and payments services.
Improving its technology
Furthermore, Groupon recently completed the acquisition of South Korean e-commerce marketplace, Ticket Monster, which should help the company to boost its sales on the e-commerce platform where it plans to sell its products in bulk. Groupon has also opened back-office infrastructure in many small countries, which are expected to be regionalized in a couple of years. This should increase its operational efficiency and reduce its SG&A expenses.
In addition to its focus on building a Local marketplace, Groupon also anticipates significant growth opportunities in its core e-mail business. Groupon currently sends over 250 million e-mails every day to its subscribers. The company will continue to innovate on its push business throughout 2014 by introducing technology like its new widget-based e-mail system called Mindstorm, which will make what customers see in their e-mails more relevant and personalized.
Taking a look at Groupon's various initiatives, it is not surprising to see why its bottom line is expected to grow at a robust pace going forward. The company is making solid improvements in mobile, while its acquisitions should allow it to bring in new technology into the business. Groupon is also focusing on product innovation. As a result of its impressive strategies, investors should think of capitalizing on Groupon's weak performance and buy some shares.
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.