Despite delivering solid growth in recent quarters, Groupon (GRPN, Financial) shares are down 36% this year. This seems baffling, especially if we consider that Groupon has beaten Wall Street's earnings estimates with a comprehensive average earnings surprise of almost 92% in the last four quarters. In addition, the company's top line growth is impressive as well, as it delivered 27% year-over-year growth in the third quarter and beat estimates.
Considering the above numbers, it looks like Groupon's weak performance is an opportunity that investors should not miss. The company is making a number of moves to establish its presence in the e-commerce space, which should help it deliver growth in the long run.
Growing at a good pace
Groupon was successful in accelerating growth through all its segments in the third quarter, driving a 39% increase in its complete gross billings to $1.86 billion.
Gross billings in North America expanded 16% to $774 million, enabled by solid double-digit growth in each of the three categories; getaways, goods and local.
Groupon expanded 155% in billings for the remaining world, propelled by the TMON acquisition. On an FX-neutral basis, rest of world expanded by 9% excluding its Korean business. Revenue increased 26%.
Groupon started the year with three key goals. First, it wanted to regain local growth in North America and abroad. Second, it targets on improving the operating efficiency and gross margins of its goods business. Finally, it aimed at achieving steadiness in its international operations and lowering the losses in the remaining world.
After continuously growing slowly for straight three quarters, its growth for North American local billings accelerated during the third quarter to 10% from 1.8% in the previous quarter, building on its target to achieve double-digit growth by the end of the year.
Making good changes
Groupon made some major changes in its operating methodology for enhancing its goods margins, mainly in North America by shifting larger portion of its business to drop-ship, moving greater fulfilment to its own distribution center in Kentucky and enhancing the units pulled.
Further, Groupon focuses on improving its international operations and minimizing its losses in the remaining world. Groupon’s One Playbook effort for standardizing the top practices worldwide is delivering excellent results, enabling it to seize the segment operating loss by approximately $12 million.
The Asian businesses of Groupon are expanding rapidly, enabled by TMON. TMON billings expanded more than 60% on year-over-year basis in the third quarter.
Groupon is exploring opportunities for unlocking considerable shareholder value coupled with positioning the businesses for maximizing their long-term growth potential in these accelerating growth markets.
Going forward, Groupon is focused on moving toward its long-term objective of expanding both, gross profit and gross billings by at least 20% yearly for the coming five years.
In the last quarter, Groupon was chosen as a launch partner for Apple’s innovative Apple Pay product, allowing it to integrate with several hundreds of millions of credit cards present on their file.
Nearly a month earlier, Groupon launched Snap, helping people in saving money on daily household items like groceries. This app has received solid customer response with about million downloads in the last 45 days, and crucially, it’s enabling its customers save huge money.
Last year, Groupon recorded more than 250 million subscribers and approximately 53 million customers leveraging its applications. Till date, more than 100 million have downloaded its mobile apps and have an opportunity to select from over 300,000 attractive deals ready to be bought in real-time.
Groupon is enhancing its every day selection with approximately 300,000 deals currently available on its site that includes more than 120,000 in North America. At present, Groupon is adding nearly 700 merchants a week through its self-serve initiatives. Moving ahead, Groupon forecasts to produce more than $20 million annual incremental billings.
Till date, Groupon has crafted over seven million pages in North America and has deployed more than 500,000 of them for indexing, which is believed to expand considerably with the release of every new city. Further, more than 400,000 people have started following its merchants or have leveraged request-a-deal. Groupon has also introduced Gnome, its merchant handling operating system dealing with more than 6,000 merchants in North America.
Conclusion
So, Groupon has a number of catalysts that make it a good long-term bet. Hence, investors should examine the company's prospects properly and see if it is worthy of investing in.
