Groupon Inc. (GRPN) reported fourth-quarter loss of 12 cents per share (excluding stock-based compensation, impairment charges and acquisition-related expenses), which was in line with the prior-year quarter figure.
However, Groupon’s first-quarter guidance was disappointing. Shares plunged 11.7% ($1.20) in after-hours trading.
Quarter Details
Revenues jumped 20.4% year over year to $768.4 million, which beat the Zacks Consensus Estimate of $719.0 million. The year-over-year growth was primarily driven by a 63.0% jump in direct revenues, which offset a 2.8% decline in third party and other revenues in the last quarter.
Region-wise, revenues from North America and EMEA surged 18.2% and 42.5% year over year, respectively. This more than offset a 15.3% decline in revenues from Rest of the world (Asia-Pacific and Latin America).
Gross billings increased 4.8% year over year to $1.59 billion. Region-wise, billings from North America and EMEA increased 9.7% and 6.2% year over year, respectively. This more than offset an 11.3% decline in billings from Rest of the world (Asia-Pacific and Latin America).
As of Dec 31, 2013, active customers increased 9.0% year over year to 44.9 million, comprising 20.8 million in North America, 14.2 million in EMEA and 9.9 million in Rest of the World.
Groupon reported that approximately 50.0% of the worldwide transactions were through mobile devices. Moreover, more than 9.0 million people downloaded Groupon’s mobile app during the quarter, which led to a robust mobile business.
Gross margin plunged 660 basis points (bps) to 49.2% in the quarter due to unfavorable business mix. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $29.7 million compared with $71.9 million in the year-ago quarter.
However, operating expenses declined 1.6% year over year to $36.3 million due to lower selling, general & administrative expenses as well as marketing expenses. As a result, operating profit jumped to $50.1 million from $13.9 million in the year-ago quarter.
Groupon’s net loss (including stock-based compensation but excluding acquisition-related expenses and impairment charges) was $1.7 million, which was slightly better than a loss of $25.8 million reported in the year-ago quarter.
Earnings ((including stock-based compensation but excluding acquisition-related expenses and impairment charges) were break-even compared with 4 cents reported in the year-ago quarter and were better than the Zacks Consensus Estimate of a penny.
Groupon exited the fourth quarter with cash and cash equivalents worth $1.24 billion compared with $1.14 billion reported in the previous quarter. Cash flow from operating activities was $178.3 million compared with $11.9 million generated in the previous quarter.
Free cash flow was $25.7 million compared with outflow of $27.0 million in the previous quarter. The company spent $37.6 million on share buyback during the quarter.
Outlook
For the first quarter of 2014, Groupon forecasts revenues in the range of $710.0 to $760.0 million, which includes $50.0 million revenue contribution from the acquired businesses of Ticket Monster and Ideeli, completed in Jan 2014.
Both the acquisitions are expected to negatively impact adjusted EBITDA by $20.0 million. Groupon expects EBITDA in the range of $20.0 to $40.0 million for the quarter. Management also said that marketing expenses will increase approximately $25.0 million in the quarter.
Groupon expects to report loss of 4 cents to 2 cents for the first quarter of 2014. However, this guidance lagged the Zacks Consensus Estimate for earnings of 2 cents.
For fiscal 2014, adjusted EBITDA is expected to be higher than 2013 levels driven by higher investments on growth initiatives.
Our Take
We believe Groupon is well positioned to gain from the rising e-Commerce spending on mobile devices, a profitable domestic market and an under-penetrated international market. We expect these opportunities to continue to drive top-line growth. Moreover, increased traction in the mobile business is another positive for the company.
However, Groupon’s back-end loaded EBITDA guidance is a major concern. Although we believe negative impact of increasing investments on profitability is a temporary factor, the company’s decision to reduce focus on China is a long-term negative.
We note that in North America, the company continues to face significant competition not only from the stalwarts like eBay (EBAY) and Amazon (AMZN) but also from small companies like LiveDeal (LIVE), which is a major headwind in the near term.
Currently, Groupon carries a Zacks Rank #5 (Strong Sell).
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