Online daily deals provider, Groupon Inc. (GRPN), declined 6.1% (68 cents) to close at $10.40 on Feb 11, 2014, after it filed an 8K to notify the resignation of its product chief, Jeff Holden.
Jeff Holden is known for his deep understanding of consumer behavior, which is significantly important for a consumer-oriented company like Groupon. The company is undergoing a transition from a mere daily deals provider to a broader based e-tailer and the departure of this key executive can hurt the product development process in the near term.
Nevertheless, we believe that the sell-off reflected growing concerns about the company’s upcoming fourth-quarter results. The company is set to announce fourth-quarter results on Feb 20, 2014. Groupon forecasts revenues in the range of $690.0 to $740.0 million. The company expects the bottom line to range from breakeven to earnings of 2 cents per share.
Currently, the Zacks Consensus Estimate is pegged at a loss of 1 cent, which is lower than the company’s guided range. Moreover, the mid-point of the revenue guidance range is slightly lower than the Zacks Consensus Estimate for revenues.
However, we believe the strong holiday season sales will boost Groupon’s fourth-quarter results. Billings were up 30.0% from the year-ago period, during the four-day holiday weekend in Dec 2013.
Moreover, Groupon’s policy of launching new products on a regular basis and the growing popularity of its mobile app continues to attract consumers. The company noted that more than 50% transactions (55.0% of North America) in the holiday season were carried out through mobile devices.
We believe Groupon is well positioned to gain from the rising e-Commerce spending on mobile devices, a profitable domestic market and an expanding international market.
Although mobile presents ample growth opportunity, increasing competition from established players such as eBay (EBAY) and Amazon (AMZN) as well as small companies like LiveDeal Inc. (LIVE) remains a major concern.
We also note that the barriers to entry into the daily deals market are quite low, which will attract new entrants, going forward. Hence, to remain competitive, Groupon will be forced to continue investments to expand its merchant base, which will hurt profitability, going forward.
Currently, Groupon carries a Zacks Rank #3 (Hold).
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