- Groupon might be beaten down, but the company is doing well to grow revenue.
- Groupon's strategies look sound, and could help it reduce expenses and improve the bottom line going forward.
- Groupon's focus on mobile and new products can be catalysts in the long run.
- Groupon's strong cash position and earnings growth expectations make it an enticing bet at 52-week lows.
Daily deals company Groupon's (NASDAQ:GRPN) performance has gone from bad to worse this year. The stock has taken a massive beating in 2014, declining close to 50%. In addition, Groupon's recent second-quarter results were not up to the mark either, as its loss widened year over year even though it reported a massive jump in revenue.
As a result of Groupon's growing losses, investors seem to be losing confidence in the stock, and it is no surprise that the stock is currently trading near its 52-week low. However, since Groupon is investing for the future, investors should not get disheartened. Its strategies seem to be reaping results, as Groupon reported a 23% increase in revenue to $751.6 million in the second quarter.
Moreover, management is determined to turn around the current situation. It is working on transforming Groupon into an e-commerce company.
How management plans to deliver growth
To boost growth, management is working on three objectives. The first objective is to reaccelerate local growth in North America, as well as abroad. According to the company, people are showing willingness to buy more products. Consequently, its billings during the quarter improved after declining for two consecutive quarters. Groupon expects the same trend to continue in the coming months, and therefore, it remains on track to deliver double digit year-over-year billings growth in North America this year.
Second, it aims to improve its margins, especially in North America. For quite some time, Groupon's expenses have almost doubled compared. Consequently, it has made strategic changes to counter this problem, which includes shifting most of its business to a drop ship platform, moving more fulfillment to its own distribution center in Kentucky, and increasing units per order. As a result of these changes, it expects margins to improve going forward.
Lastly, Groupon is focused on improving its international operations and reduce losses globally. It has made progress in this direction, as its growth in the Asia Pacific was one of the key reasons behind a 145% jump in billings in the rest of world segment last quarter.
Investing in mobile
Groupon is also seeing good traction in its mobile segment. In fact, the company is trying to become a predominantly mobile business. According to statistical data, around 92 million people have downloaded its app, and reports reveal that it has become the "most mobile large-scale ecommerce company in the world." Also, management is working on the convergence of Local and Mobile. Looking ahead, Groupon anticipates a world where all merchants and consumers are connected in real time. The main idea behind this is to make the Groupon experience "seamless, frictionless, and fun."
Cleary, the company is making progress to improve its platform. At the same time, Groupon is enhancing its product portfolio that will allow merchants to offer deals that vary based on both time of the day and day of the week. This will attract more merchants that previously couldn't work with Groupon.
Groupon is launching two new products, namely Pages and Genome. Pages will create a web and mobile presence for every local merchant, providing valuable information like maps, time of service etc., to users. It has built pages for millions of merchants in North America, and expects the same to continue in the coming months. On the other hand, Genome is a new operating system for its merchants that will allow customers to redeem their Groupons without ever taking their phone out of their pocket.
Going forward, these initiatives might fuel Groupon's growth. In a statement, management said, "Our local mobile and marketplace investments together with Genome represent the culmination of years of hard work and significant investment, which we believe firmly positions us to realize our vision of connecting local commerce."
There is no doubt that Groupon is working toward growing the business aggressively. The company is working to make its platform better, apart from rolling out new products. Moreover, Groupon has secured a $250 million revolving line of credit, which will give it more resources to invest in the business. In addition, Groupon already has around $868 million in cash. In addition, over the next five years, it is estimated that Groupon's earnings will grow at a rate of 27% a year, so investors can consider using Groupon's weak performance in 2014 as a buying opportunity.
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.