Are Groupon Shares the Deal of the Day?
The company had been beset by low expectations, accounting issues and board members leaving . The Chicago-based firm, however, managed to surpass Wall Street's expectations, with growth re-accelerating.
Revenue soared 89% year-over-year, thanks in part to a strong international segment, which saw 102% growth in the same time frame. Citigroup analyst Mark Mahaney noted that, although there was a 103% rise in gross billings year-over-year, the company's revenue growth slowed from the prior quarter. Nonetheless, North American revenue growth rose 33% year-over-year, and Consolidated Segment Operating Income (CSOI) margin came in at 12%, a record high. Mahaney upgraded Groupon to "buy" and raised his price target to $24 from $22.
Groupon reported first-quarter earnings of 2 cents a share on $559.3 million in revenue. The average estimate of analysts polled by Thomson Reuters was for profit of a penny a share on revenue of $530.6 million. The daily deals site also forecast stronger-than-expected second-quarter revenue between $550 million and $590 million. Analysts expect $558.7 million in sales.
Led by CEO Andrew Mason, Groupon has expanded into new initiatives, such as mobile, personalization, and Groupon Getaways, a strategy that has brought in new customers and helped monetization. "Given that North America is a more mature market relative to many international markets, we believe GRPN's 1Q performance was particularly impressive," wrote Sterne Agee analyst Arvind Bhatia. "Active customers, groupons per customer, and revenue per groupon each increased in 1Q in North America." Bhatia upgraded Groupon to "buy" with a $20 price target.
Groupon competes with a slew of companies, including LivingSocial, Amazon(AMZN) and a host of others in the North American market, but international is perhaps Groupon's most important segment, accounting for 57% of revenue during the quarter. Benchmark analyst Clayton Moran noted that international segments proved profitable for the first time, with an operating profit of more than $27 million. Moran has a "buy" rating on Groupon, but lowered his price target to $20 from $28.
Despite the sharp run up in share price on Monday and early Tuesday, Groupon is still down 33.2% year-to-date. Gross margins declined for the fourth straight quarter, and marketing spending for new customers continues to rise. Mahaney notes that overall marketing spend per net new active customer was $38 in the first-quarter, the highest rate since the fourth-quarter of 2010. Marketing spend was was down for the fourth straight quarter, however.
The jury still appears to be out on Groupon, even with solid first-quarter results, but more quarters like this, and investors may have to purchase one of the company's daily deals just to buy the stock.