Groupon (GRPN, Financial) released mixed financial results for the third quarter 2014, driven by its new business model.Â
The Chicago-based company posted revenue of $757.1 million, an increase of 27% over the same quarter a year earlier. Its revenue also surpassed consensus estimates of $749 million. However, its net loss for the quarter widened to $21.2 million or earnings of $0.03 per share, compared to net loss of $2.6 million or earnings of $0.02 per share in the corresponding period last year.
Looking forward, Groupon has released guidance for the fourth quarter. It expects its revenue to be in the range of $875 million to $925 million, while its earnings are expected to range between $0.02 per share to $0.04 per share. Analysts are forecasting earnings of $0.07 per share on the revenue of $926 million for the fourth quarter 2014.
Key priorities driving its performance
Groupon remains on track with three of its key priorities this year: reaccelerating growth in North America and rest of the world, enhancing its operation efficiency and gross margins, and attaining stability in the global operations. It has made significant progress in each of these priorities.
It is now seeing incredible improvements in redemption and email declines that are driving traffic and increasing its billings in North America. Groupon has managed to bring stabilization in the redemption, which is now in line with its growth in local billings. This should certainly enhance its billing growth in North America going forward. Also, Groupon has well over 100 million customers and approximately 800,000 merchants. This robust customer base should construct a great platform for the company to launch new products and improve its profitability.
Groupon is making significant progress with its self-serve efforts such as tablet-based checkout register. This tablet-based checkout register is part of its Gnome program that should help the company to establish strong platform for local commerce network. Also, it should effectively connect both the customer and merchant in real-time. Merchants can now better attract customers by way of offering best deals and discounts on the site. Groupon is able to add approximately 700 merchants a week at present. It has about 300,000 deals available on its site, including 120,000 in North America. The company expects to generate nearly $20 million incremental billings annually going forward.
Omni-Channel and distribution initiatives to supplement its growth
Groupon is concentrating on the Omni-channel growth initiatives such as mobile apps. It is seeing positive responses for its mobile apps as more than 8 million users have downloaded the app. Also, the company has recently launched a new app called Snap, which helps people to save money on daily household items such as groceries. The company has seen about a million downloads for the app within a couple of weeks.
Groupon is also focusing on improving its distribution networks that should enhance its gross margins for its goods business. It is executing various strategic initiatives such as shifting its fulfillment operation to two of its distribution centers in Kentucky. It has now moved most of its business to a drop-ship model that better helps the company to track growing units sold for every order. This is certainly a great improvement and should help the company to reduce costs and yield better earnings in the future.
Apart from these initiatives, Groupon is focusing on improving the customer and merchant experience. It is aggressively increasing its supply in order to get more deals on its site and simplifying the process of discovering those deals on its site. It is also rolling out innovative tools in order to improve the buying experience on Groupon.Â
Conclusion
Groupon has started seeing the benefits from its turnaround growth initiatives. Its mobile app is gaining traction in the market and attracting many users and merchants to its folds. Also, its distribution channels look good and should enhance overall profitability for the company going forward.
