Groupon (GRPN) Q4 Earnings Miss, Revenues Beat, Down Y/Y

Shares of Groupon Inc. (NASDAQ:GRPN) declined more than 9%, yesterday, after the company reported mixed fourth-quarter 2017 results. The company reported non-GAAP earnings of 7 cents per share, which missed the Zacks Consensus Estimate by a couple of cents.

Revenues of $873.2 million declined 3.5% on a year-over-year basis (6% at FX neutral) but surpassed the Zacks Consensus Estimate of $861 million.

The company has been trying to reduce dependence on goods deals and is shifting focus toward local services market. This is because local services market is a high margin business while goods deals bring in high revenues but smaller margins.

The transition is hurting the company’s revenues as reflected in fourth-quarter results.

Groupon stock has gained 1.7% year over year, underperforming the 56.3% rally of the industry it belongs to.

Quarter Details

Region-wise, North America revenues decreased 11.7% from the year-ago quarter while International revenues increased 17.5% year over year.

Billings from North America were down 4.7% year over year. However, international billings increased 5.8%.

North America local gross billings of $605.5 million grew 2.5%. Local revenues of $223.4 million grew 6.5% from the year-ago quarter. However, goods billings declined 14.2% to $369.9 million and revenues fell 20.9% to $333.9 million.

As of Dec 31, 2017, the company had approximately 49.5 million active customers globally. Groupon added nearly 200K new customers in North America during the quarter. Active customers in North America were 32.7 million at the end of the quarter.

International local gross billings of $229.2 million grew 3.5%. Local revenues of $80.2 million grew 16.4% from the year-ago quarter. Moreover, goods billings increased 10.1% to $233.4 million and revenues climbed 19.1% to $206.1 million.

Management noted that the company’s new offering Groupon+ has been well accepted as the company is enhancing customer experience by investing in voucherless initiatives. This is expected to be a catalyst going ahead. It is currently operating in more than 25 markets.

The company’s partnership with Grubhub (NYSE:GRUB) enables customers to order food delivery from around 55,000 restaurant partners of Grubhub via Groupon platform.

Groupon recently inked a partnership with ParkWhiz that will provide its users facility to reserve convenient parking spots before reaching a particular destination. With the integration of ParkWhiz’s services within the Groupon app, users will be able to explore and discover local businesses in their communities, simultaneously reserving and paying for a convenient parking spot.

Management is particularly positive about the company’s offline campaigning and brand awareness programs, which have aided revenue growth. With a proper mix of products along with accelerating consumer activities, management anticipates growth going forward.

Operating Details and Cash Flow

Gross profit was during the quarter came in at $386.9 million, up 10% (8% FX at FX neutral). North America gross profit increased 6% to $265 million. Internationally, it surged 21% (12% on an Fx-neutral basis). Continues focus on execution of its product, supply, and marketing initiatives were positives in the quarter.

Successful implementation of the company’s streamlining activities was evident from the 31% year-over-year increase in adjusted EBITDA, which totaled $105.3 million.

Global units sold during the quarter declined 6% year over year to 54.6 million. North America units were down 7% year over year, primarily due to the divestiture of certain OrderUp assets and investments in scaling Groupon+.

The company exited the quarter with cash and cash equivalents of $880.1 million. Cash flow from operations during the quarter came in at $270.6 million. Free cash flow was $255.1 million in the fourth quarter.

Outlook

For full year 2018, Groupon expects revenues to be approximately $2.6 billion. The Zacks Consensus Estimate for revenues is pegged at $2.91 billion.

For full year 2018, adjusted EBITDA is projected in the range of $260-$270 million.

Zacks Rank & Key Pick

Groupon carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the technology sector are NVIDIA Corporation (NASDAQ:NVDA) and Paycom Software, Inc. (NYSE:PAYC) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NVIDIA and Paycom Software have a long-term expected earnings growth rate of 10.3% and 25.8%, respectively.

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