Groupon (GRPN, Financial) investors are losing faith in the company, but to their surprise the company announced Q1 revenue surpassing the expectation of every investor and analyst. The company recorded a good quarter, beating revenue and non-GAAP EPS estimate.
Wunderlich’s analyst Blake T Harper said Groupon will post stronger growth in its business in North America even though the company continues to experience a slump in its foreign exchange division from where the company derived almost 30% of its revenue last year. Groupon has lost nearly 14% from last year but recently regained a 5% position.
The story earlier and now
The Q1 results of 2014 had the same story the analysts estimated $738 million and the actual came out to be $758 million. This year the first quarter has shown exponential growth of 9% with the revenue clocking $828 million. This has also surpassed the expectations of the analysts. The whooping height is pleasing but yet fails to charm the investors somehow. According to the analysts the company still remains to be a risky bet, given the fact that it is an unproven low margin goods business.
Overall Groupon's improvement in gross margins is offset by an increase in marketing spending and selling. Yet the cost proved that it was not a waste and turned the revenue higher. Even Wall Street expected the revenue to be at $817 million. Though the analysts have low expectations for the company, the company is performing better than expected and is blooming with its new strategies.
The outward direct investments of the company
Groupon recently announced to sale its controlling share in one of its old investment. Merely a year and few months back Groupon acquired stakes in one of the Korean ecommerce company called “Ticket Monster.” The company stakes were acquired in January last year for $260 million. Groupon last month announced plans to sell its stake of 46% in the company at a price of $360 million. That’s a straight hit of $100 million in merely a year’s time.
Harper said that this deal will help Groupon reach the double digit margin that the company was aiming for in the second half of the year 2015 for its earnings before interest, tax, depreciation and amortization. The deal is a sign of the company's good investing abilities and proof that the company has ample resources to back itself with such reserves in the time of need.
Such decisions of the company can re-establish trust among investors and may be able to maneuver the analysts’ attitude towards the company in a positive direction. The prediction for the investors of the company is a hold for now as the company’s stake sales impact will reflect in the second half of the year as the Q2 results will be unveiled by the company. The portfolio divestment can also be done in the company if the investors are planning for a hold and growth situation.
One of March’s U.S. customer survey has also shown a favorable attitude towards the company.
Conclusion
The company holds a lot of potential, else staying in a market that itself is not doing well in the situation of cut throat competition and innovations could have been near impossible. Company’s strategy is futuristic and has ample reserves to back it up. Staying invested in Groupon can pay better later on. Figures play a big role in affecting market sentiments, and the next figure in Q2 sounds impressive enough already.
