Groupon (GRPN, Financial) ended fiscal 2014 with impressive numbers. 2014 was a year of transformation for Groupon, and the significant progress in the recent years demonstrates the success of its efforts in becoming the world’s local commercial destination.
A strong performance is expected this year
The company is now expecting an upbeat performance in 2015. However, it is also concerned about certain challenges; it might face fluctuation in foreign exchange rates. But it thinks that a solid 20% growth in the revenue and better gross profit will help it to stand strong in this headwind and can gain further market share in 2015. With the future looking bright, Groupon can be a good long-term holding as well. But it has to keep a check on its competitors such as Facebook (FB, Financial) and Google (GOOG, Financial), which are already sharing a bigger piece of the pie.
Despite strong results, Groupon suffered net operating loss of $13 million, mainly due to continued investment by the company in TMON which it could have avoided. This has hurt Groupon’s market share. Another thing which the company is worrying about is the foreign currency fluctuations. The weak euro might have a negative impact on the company’s smooth flow. Groupon is well aware of this fact and is now focusing on various initiatives to improve its profitability.
Strong opportunities ahead
Now moving deeper into its business, Groupon is seeing better business opportunities in 2015. The company is confident on the back of impressive 20% growth in billings in the recently reported quarter. An impressive growth in billings indicates better consumer attachment to Groupon, which is a positive sign for it. The consumers are reacting positively to these changes, and the company is expecting better opportunities not only in North America but also in other international markets as well. It is pleased with the success in the local markets. Considering this, it is now focusing on positioning its Asian assets in an innovative way to deliver long-term shareholder value.
Korea is appearing as a golden growth opportunity for Groupon. It is now ramping up investments in Korea as it expects Korea to be an essential part of Groupon’s long term success. In fact the company also acquired TMON which is Korea’s biggest ticket monster and it is now exploring a range of financing and strategic initiatives for TMON more broadly.
In addition, Groupon is engaged in building a local and mobile marketplace which should be beneficial for customers. To create a relevant geographical experience for the customers, Groupon is focusing on two initiatives. First of all it is trying to create a marketplace stuffed with high-quality inventory that will play a major role in attracting customers. It is seeing good response from the customers and to further take it to a better level it is realizing the need for more inventory to create a better customer experience.
Conclusion
Moving to the fundamentals now, the stock doesn’t have a trailing P/E as it delivered loss on the back of heavy investments in the past in TMON; however, the company is now growing and its forward P/E of 33.65 is indicating robust earnings growth in the future. Groupon is also focusing on some long-term growth initiatives, and the stock is also expected to be a good long-term holding as its earnings for the next five years are growing at a CAGR of 27.50% as compared to the industry average of 20.29%. All these valuation levels are positive and clearly indicates that Groupon is definitely a good pick as of now.
