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Navid B.
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CFA charterholder. Masters in engineering. Investor, investment manager & options strategist.
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  • What To Look For In Groupon's Earnings

    Groupon (NASDAQ:GRPN) will be announcing its third quarter earnings after the bell today. The street on average expects revenues to come in at $591M, EPS at $0.04, and Q4 revenue guidance at $633M.

    I would not be surprised if Q4 guidance is lowered to the impact of hurricane sandy and the storm Nor'easter. The stock has likely priced this in as it dropped from mid $4's to $3.85 today.

    Aside from street expectations, I would focus on a few specific points in the earnings release and on the conference call:

    1. Cash Flow Generation

    Groupon generated $159 million of cash from operations last quarter, but majority of this came from working capital management. I would like to see the company generate free cash flow, in other words positive cash flow from operations after adjusting for changes in working capital and deducting capex.

    I would also keep an eye on the current ratio. The current ratio sat at 1.3 at the end of Q2. A declining current ratio may suggest deteriorating fundamentals.

    2. International Business

    Groupon has not had much success with its international business. In April, Groupon replaced Marc Samwer with Veit Dengler as the head of its international business unit. Dengler left the company in September, and his position was filled by Chris Muhr, SVP of sales.

    Whether these changes will make a difference in Groupon's international business unit remains to be seen. I would pay close attention to management's commentary on this.

    In the absent of detailed disclosures or commentary, the overall company's tax rate can be used as a decent proxy for the health of the international operations. As I explained in my article on October 2, Groupon pays an exceptionally high tax rate because it is unable to offset it's losses in some countries with profits elsewhere. A declining tax rate could suggest more even profitability across geographies and could be a sign the international business is on the rebound.

    3. New Business Lines

    Groupon recently acquired BreadCrumb, and iPad-based POS and restaurant management system. It also announced Groupon payments, a competitive payments processing service similar to Square.

    These are fairly new businesses and thus will not be moving the needle this quarter or the next. However, they have the potential to be significant revenue contributors in the future. I would be looking forward to management's commentary on these new businesses, and what their plans are going forward. In particular, I would like to see if management has any plans to generate profits from these new business, or if they are just meant as moats around its core deals business.

    Disclosure: I am long GRPN. 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.

    Additional disclosure: I have a small long position in Groupon. I may buy or sell shares of Groupon in the next 72 hours.

    Tags: GRPN, earnings
    Nov 08 3:13 PM | Link | Comment!
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