Groupon (GRPN) had a soft start to fiscal 2014. The company posted solid revenue, but it failed to narrow its losses. The deals website is planning a transition from a traditional website offering to a strong e-commerce channel, and it seems that its transition efforts are hitting bumps. However, there is room for the company to improve in the future. It is counting on the mobile segment. Also, the recent announcement of Groupon getting along with SolarCity can also be viewed as good news.
Groupon's financials were not so impressive. Its mixed results indicate that the company is working on its transitional initiatives. As a result, Groupon’s EBITDA was pressurized, leading to a drop of 42.9% to $40 million from $70 million last year. However, impressive revenue of $757.6 million, a solid 26% increase, indicates that this weaknesses might be short-term in nature, and Groupon can overcome them.
The gross profit for Groupon also rose 2% in the first quarter. The company is focused on transitioning its business to a strong e-commerce channel and is investing aggressively in marketing initiatives. These initiatives are another reason behind its disappointing earnings. It reported a net loss of $19.95 million as against net profit of $21.17 million last year.
Plans for the future
Groupon has plans to remodel itself as an e-commerce player. The transition efforts by the company might have hurt its short-term performance. But Groupon has many strong points. It has a new business category, it has changed its business plan and most of its leadership team. It has taken critical steps to reduce reliance on the e-mail channel, capitalize on mobile, and improve international operations. Groupon is seeing strong demand all over the world, leading to a 29% increase in billings.
Groupon is focusing on marketing initiatives. It is focusing on various aspects to improve its bottom line and to create long-term value. Groupon is looking at three key aspects of the business that will help it accelerate its growth not only in North America but across the globe.
The e-commerce business of the company is growing at a fast pace. Also, its new services like Basics are driving growth, as it allows consumers to stock up more than 100 household, personal care, health and wellness, and grocery items. Driven by this new introduction, Groupon is expecting its book-to-bill ratio to improve by 25%. These initiatives will help it strengthen its long term growth prospects.
Moreover, Groupon is carrying out various initiatives to improve its sales. It is moving aggressively to attract more customers by offering discounts. These smart moves by Groupon are expected to help its sales grow. It is also making use of media to promote its business. It is running TV commercials in top markets such as Atlanta and San Francisco to make customers aware of its product offerings.
In the course of expanding its e-commerce platform, it has stretched its footprint to Korea, where it has acquired the South Korean e-commerce market place player Ticket Monster. Besides this, the IDEELI acquisition is expected to help Groupon aggressively promote its products.
In addition to its focus on building a local marketplace, Groupon expects that its push business will grow in the future. It sends about 250 million e-mails to its subscribers daily. Also, it is making innovations in this product offering so that its e-mail becomes competitive in this market. It has added a new widget system known as Mindstorm, which provides a user friendly environment, helping customers see e-mails that are more relevant and personalized.
Groupon is doing well to make a turnaround. Investors should definitely consider this turnaround play for their portfolio. The company is cheap on a trailing P/E basis and is debt free, so it will be a good idea for investors to buy Groupon's turnaround.