Quotient: New Name, But Issues Remain The Same

| About: Quotient Technology (QUOT)

Summary

The excitement after the new name is evident by the strong stock performance, but the core issues remain unanswered.

The macro retail environment remains challenging and there are limited catalysts that promise a consistent growth trajectory for the mature coupon business.

High multiple and large premium over peers seems to be at risk.

Quotient Technology (QUOT) has been flying high after the name change from Coupons.com. The reason seems less apparent, given the fundamentals do not seem to be offering as strong a reason for the excitement. Indeed, on the contrary, it is easy to argue that the recent growth, helped by the acquisition of this 'everything coupons' company may come against the challenge of a tough macro environment for retailers.

Usually, anytime a matured business like coupons that lacks profitability has a new CFO and coming against macro headwinds, the stock rarely trades at more than 50 times expected EPS for next year and twice the level it was trading just six months. Even though the space, consisting of other publicly listed names like GroupOn (NASDAQ:GRPN) and RetailMeNot (NASDAQ:SALE) that was covered in detail in my note last week, is inviting strong interest from investors, partly as back-to-school plays, the sentiment towards Quotient may find it hard to carry through the current excitement over the coming months. There are hardly any catalysts that suggest more upside to the currently guided 12-14% topline growth for the year and adjusted EBITDA of $25-27 million.

Don't be surprised, yes you have heard this before

Most readers following the space for a while may attest that this is definitely not the first time this digital promotions business is generating excitement. Before Quotient, the company was known as Coupons.com and generated an equal amount of, if not more, excitement around its IPO in 2014, when the stock closed more than 80% over the offering price, somewhat in line with the high-flying Cloud stories at that time. Before Cloud-based digital promotions/coupons, the business, which was launched in 1998, invited strong interest as ValuePass and StoreCoupon from investors.

Right now, the Long thesis seems to be banking on the promise that the RetailerIQ platform, which was launched in 2014 and delivers digital coupons using behavioral data, and new partnerships will eventually lead the company to sustainable topline growth, while tight expense management, and leverage of a typical Cloud model, will allow the business to generate enough profitability to grow into current valuations. Of course, the hope is fueled by the growth of digital printable and paperless coupons, adoption of coupon targeting and analytics platforms by retailers and more partnerships like the ones recently announced with Walgreens (NASDAQ:WBA), which allows redeeming paperless coupons and 'clip' directly from Walgreens' website and App, and Target (NYSE:TGT) that allows the users on Target's Cartwheel App to have access to Quotient's database rather than a smaller database of Target.

Decent momentum on a few counts, but challenges high and headwinds gaining strength

All this promise is hardly boiling down to the numbers, at least not as successfully as the stock may want us to believe. The adoption of RetailerIQ is going strong, with more than 75 retailers on board and almost 80-targeted offers launched during the last quarter, but two years after the launch of the platform, one can expect the same and the story migration from legacy sales platform to RetailerIQ seems to be getting over, given RetailerIQ represents two-thirds of all paperless transactions.

The latest quarter's revenue growth, almost 20% Y/Y, was helped by the acquisition of Shopium, excluding which total revenue growth would have been 2 percentage points lower. The comps that were helped by the acquisition over the past few quarters may not be as supportive from next quarter onwards. With digital paperless transactions representing 63% of all transactions last quarter, 'conversion to the paperless' theme is mostly played out. The digital paperless transactions grew 8% sequentially, but digital print transactions declined by 12% during last quarter and average promotion revenue per transaction was mostly flat over last year.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.