Groupon (GRPN) reported Q2 results yesterday.
Key highlights:
- Gross billing: $1,287 million, +38% y/y
- Revenue: $568 million, 45% y/y,
- GAAP operating income: $46 million, vs. $101 million loss a year ago
- Non-GAAP operating income: $72 million, vs. $62 million loss a year ago
- GAAP EPS: $0.04 vs. $0.35 loss per share a year ago
- Non-GAAP EPS: $0.08. vs $0.23 loss per share a year ago
- Cash: $1.2 billion
- Q3 revenue guide: $580-620 million, the midpoint of which represents 40% y/y growth
What I liked: Profitability reaches an inflection point; Deal Customization gains traction
As I mentioned in my earnings preview (view report), Groupon is on a steady path towards profitability. GAAP EPS came in at $0.04 per share, beating average analyst estimate of $0.02 loss per share.
Rising profitability can be credited to lower operating expense. I note that marketing spend as a percentage of revenue, a key operating cost for group-buy companies, has declined to 15% from 54% in 2Q11.
Going forward, Groupon's profitability will continue to expand due to increasing scale which will further lowering the operating expense.
Another point that I was especially positive about was Groupon's Deal-Customization. Over the past six months, Groupon increased the size of its deal bank by more than 10 times to 8,000 deals from 600. Deal customization is positively affecting the company's brand awareness and user base. In Q2, active customers numbered 38 million, a 65% y/y increase.
Larger number of customized local deals will greatly reduce deal-fatigue that result from Groupon's daily emails because relevant deals that closely match users' interests will most likely spur purchases that translate to continued revenue growth.
According to management, Groupon will reach $2 billion in revenue and $5 in gross booking at the current run rate.
Finally, Groupon has $1.2 billion in cash at the end of the quarter. While the company is currently focusing on making strategic investments to build its business, the current cash pile, coupled with addiitonal quarter of cash generation, makes future share buy-back a real possbility.
What concerned me: Revenue miss
Groupon's revenue of $568 million came in lower than the consensus of $573 million, partially due to weak macro environment in Europe and FX. While North America revenue was especially robust with 66% y/y growth, International sale grew only 31% y/y. A majority of Groupon's International sale comes from Europe, where the company will likely to continue face a combination of macro and FX headwinds. This is a major concern given that International revenue accounts for over half of Groupon's total revenue in Q2 and continued weakness abroad may translate to future revenue misses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
