Groupon (GRPN) Q2 Loss Lower Than Expected, View Raised

Groupon Inc. (NASDAQ:GRPN) reported better-than-expected results for the second quarter of 2016. The reported loss was lower-than-expected and revenues exceeded expectations. In addition, Groupon also raised its outlook for fiscal 2016.

The results boosted investors’ confidence as reflected in a surge of nearly 24% in shares in the after-hours trading session yesterday.

Adjusted loss (including stock-based compensation, acquisition-related expenses and tax impact) was 6 cents per share, which compared favorably with the Zacks Consensus Estimate of a loss of 7 cents per share. However, it was greater than the year-ago quarter loss of 3 cents per share.

GROUPON INC Price, Consensus and EPS Surprise

GROUPON INC Price, Consensus and EPS Surprise | GROUPON INC Quote

Revenues

Revenues of $756 million beat the Zacks Consensus Estimate of $712 million and also improved 2.4% on a year-over-year basis.

Region-wise, revenues from North America increased 7% from the year-ago quarter while that from EMEA and the Rest of World (Asia-Pacific and Latin America) declined 3% and 23% year over year, respectively. On a constant currency basis, revenues from the Rest of World declined 14% year over year while that from North America and EMEA remained flat.

Gross billings dropped 2% year over year to $1.49 billion in the quarter. Region-wise, billings from North America increased 9% year over year. However, billings from EMEA and the Rest of World declined 12% and 27% year over year, respectively.

As of Jun 30, 2016, it had approximately 27.9 million active customers in North America. It added nearly 1.1 million new customers in the quarter.

At the end of the quarter, on an average, active deals were about 800K globally while those in North America rose to 475K.

Groupon’s operating expenses rose 8.8% year over year to $376.8 million.

Loss from continuing operations was $43.2 million compared with $9.2 million in the year-ago quarter.

The company repurchased about 6.8 million shares in the quarter for $24.4 million.

Balance Sheet and Cash Flow

Groupon exited the quarter with cash and cash equivalents worth $780.1 million compared with $853.4 million as on Dec 31, 2015.

Cash used in operating activities in the quarter was $54 million in contrast to cash flow of $20.3 million reported in the prior-year quarter.

Free cash outflow was $70.4 million in the quarter.

Outlook

For 2016, the company increased its revenue guidance to a range of $3 billion to $3.10 billion from the earlier projection of $2.75 billion - $3.05 billion. Adjusted EBITDA for 2016 is now projected to be between $140 million to $160 million, much higher than the earlier expectation of $85 million to $135 million.

Our Take

Groupon’s new business strategy (with core focus on marketing, international and shopping) appears to be working for the company. Its performance has started to improve since the past few quarters after CEO Rich Williams took the helm.

The company continues to see strength in its customer acquisition and shopping endeavors, aimed at developing its local core business.

The company has also been taking a number of strategic initiatives to streamline its operations. It has also increased its marketing spend, which should boost its business to a great extent in the long run.

Last month, the company signed a multi-year Enterprise Adoption Agreement (EAA) with Splunk Inc. (NASDAQ:SPLK) . The company is leveraging Splunk’s offerings to obtain real-time insights pertaining to operations, thereby enhancing its own platform. In addition, its OrderUp division collaborated with Qdoba Mexican Eats to deliver Mexican food from various eateries to over 675 locations across the U.S., thereby substantially expanding its presence.

However, Groupon is investing quite a bit in the transition, which is expected to affect its near-term financials. Competition from giants like eBay and Amazon.com (NASDAQ:AMZN) and impending lawsuits are the other headwinds investors need to watch out for.

Groupon carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is EVINE Live Inc. (NASDAQ:EVLV) , sporting a Zacks Rank #1 (Strong Buy).