Groupon Inc. (GRPN) reported fourth-quarter earnings per share of 2 cents (including stock-based compensation, acquisition-related expenses and tax impact), which compared favorably with the Zacks Consensus Estimate of a loss of 2 cents per share and the year-ago quarter loss of 12 cents per share.
Excluding stock-based compensation, amortization of acquired intangible assets and acquisition-related expense, the company reported non-GAAP earnings per share of 6 cents compared with earnings of 8 cents in the year-ago quarter.
Revenues
Revenues jumped 20.4% year over year to $925.4 million, which beat the Zacks Consensus Estimate of $905 million. The year-over-year growth was primarily driven by a 44.5% surge in direct revenues in the reported quarter.
Region-wise, revenues from North America, EMEA and Rest of World (Asia-Pacific and Latin America) increased 24.2%, 8.5% and 38.8% year over year, respectively.
Gross billings increased 31% year over year to $2.1 billion in the quarter. Region-wise, billings from North America and Rest of World increased 20.3% and 140.9% year over year, respectively. However, billings from EMEA region declined 0.9% year over year.
As of Dec 31, 2014, active customers increased 23% year over year to 53.9 million, with 24.1 million customers in North America, 15.2 million in EMEA, and 14.6 million in Rest of World.
At the end of the quarter, on an average, active deals were over 370K globally, compared with more than 300K at the end of third-quarter 2014. North American active deals rose to 135K.
Groupon reported that its monthly unique users i.e. people using Groupon through both mobile devices and web came over 160 million in the quarter. Moreover, more than 110 million people downloaded Groupon’s mobile app so far, which led to a robust mobile business.
Margins
Gross margin decreased 670 basis points in the quarter to 42.5%. Operating expenses increased 2.8% year over year to $375 million due to higher marketing expenses. Operating profit was $18.4 million compared with $13.4 million in the year-ago quarter.
Balance Sheet
Groupon exited the year with cash and cash equivalents worth $1,071.9 million compared with $1,240.5 million reported in the prior-year. Cash flow from operating activities was $286.8 million in the quarter compared with $178.3 million generated in the prior-year quarter.
Free cash flow was $266 million in the quarter.
Outlook
For the first quarter of 2015, Groupon forecasts revenues in the range of $790 to $840 million. The Zacks Consensus Estimate for the same is pegged higher at $860 million.
Groupon expects adjusted EBITDA in the range of $45 million to $65 million for the quarter. Management expects to report non-GAAP earnings in the range of breakeven to 2 cents per share.
Our Take
We believe that Groupon can be impacted by the intensifying competition from peers like eBay (EBAY) and Amazon.com (AMZN) as well as smaller companies like LiveDeal, which is a major near-term headwind. Growing competition is expected to keep Groupon’s pricing under tremendous pressure in the near term. Furthermore, it reduces the company’s bargaining power with the merchants as they can move to other deal providers.
Moreover, the soft outlook provide by the company failed to impress investors as reflected in the 3% decline in shares in afterhours trading yesterday.
Nonetheless, rising e-commerce spending on mobile devices, a profitable domestic market and an underpenetrated international market can prove to be positives for the company.
Groupon carries a Zacks Rank #3 (Hold). A better-ranked stock in same space is PetMed Express, Inc. (PETS), sporting a Zacks Rank #1 (Strong Buy).
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