A month has gone by since the last earnings report for Groupon (GRPN). Shares have lost about 3.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Groupon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Groupon Q4 Earnings Lags, Revenues Beat Estimates
Groupon reported mixed fourth-quarter 2018 results. The company’s non-GAAP earnings of 10 cents per share missed the Zacks Consensus Estimate by 3 cents. However, the figure increased from 7 cents reported in the year-ago period.
Although revenues of $799.9 million declined 8% on a year-over-year basis (7% at FX neutral), it surpassed the Zacks Consensus Estimate of $792 million. The year-over-year decline can primarily be attributed to lower customer traffic.
The company has been trying to reduce dependence on goods deals and is shifting focus toward local services market.
This is because local services market is a high margin business while goods deals bring in high revenues but smaller margins. The transition continues to hurt the company’s revenues as reflected in fourth-quarter results.
Service revenues (39.8% of total revenues) declined 8% year over year to $318.8 million. Product (60.2%) revenues slumped 8.6% to $481.1 million in the same period.
Region-wise, North America revenues (63.1% of total revenues) decreased 12.2% from the year-ago quarter to $504.7 million. Meanwhile, International revenues (36.9% of total revenues) decreased 1.1% (up 2.3% excluding foreign exchange effect) year over year to $295.2 million.
In the fourth quarter, billings from North America were $927.7 million, down by 12.5% year over year. Moreover, international billings decreased 4% (0.6% excluding foreign exchange effect) to $501.3 million.
North America local gross billings came in at $535.9 million, decreasing 11.5%. Local revenues of $199.5 million declined 10.7% from the year-ago quarter. Further, goods billings and revenues fell 13.5% and 13% to $319.9 million and $290.5 million, respectively.
International local gross billings were $235.1 million, improving 2.6% (6.2% excluding foreign exchange effect). Local revenues of $84.7 million grew 5.7% from the year-ago quarter (9.4% excluding foreign exchange effect).
However, goods billings decreased 9.5% year over year to $211.2 million. Meanwhile, revenues decreased 3.1% to $199.8 million.
Groupon's online marketplaces have been categorized under three heads, namely Local, Goods and Travel. Consolidated revenues from Local (35.5% of total revenues), Travel (3.2%) and Goods (61.3%) declined 6.4%, 14.5% and 9.2%, respectively from the year-ago quarter.
Gross profit from Local was decreased 4.6% year over year and came in at $260.1 million, while Travel marketplaces gross profit declined 12.8% to $21.7 million.
Gross profit in the Goods market declined 5.7% to $84.2 million.
As of Dec 31, 2018, Groupon had approximately 17.6 million active customers internationally compared with 17.4 million at the end of the previous quarter.
As of Dec 31, 2018, the company had approximately 30.6 million active customers based in North America compared with 31.4 million at the end of the previous quarter.
The company continues to take initiatives to bolster card linked offers platform and enrich customer experience.
Gross profit during the fourth quarter came in at $366.1 million, down 5% (4% at FX neutral). Internationally, gross profit decreased 3% (up 1% on an FX-neutral basis) to $118.5 million. However, North America gross profit dropped 7% to $247.6 million.
Adjusted EBITDA decreased marginally 0.7% totaling $104.6 million.
Global units sold during the reported quarter declined 8% year over year to 50.5 million, primarily owing to lower traffic.
North America units were down 13% year over year, primarily on account of the divestiture of certain OrderUp assets, continued investments in scaling Groupon+ and maximization of long-term gross profit. However, International units were up 3% year over year.
SG&A expenses decreased 13.4% year over year to $194.6 million in the reported quarter. The decrease was mainly due to continuous efficiency efforts and lower compensation expenses.
Marketing expenses declined 2% to $109.7 million primarily due to optimizing spend in regard to high value customers.
Operating income from continuous operation came in at $49.9 million as compared with $51.1 million reported in the year-ago -quarter
Balance Sheet & Cash Flow
Groupon exited the quarter ending Dec 31, 2018, with cash and cash equivalents of $841 million up from $572.4 million, reported at the end of the previous quarter.
Net cash from operations during the quarter came in at 323.8 million, compared with $57.4 million generated in the previous quarter.
Free cash flow came in at $250.8 million in the fourth quarter compared with ($73.5) million in the previous quarter.
The company repurchased 3.3 million shares worth $10 million during the reported quarter.
Fiscal 2018 Highlights
Groupon reported fiscal 2018 non-GAAP earnings of 18 cents per share, increasing from 11 cent reported in the year-ago period.
Revenues of $2.64 billion declined 7% on a year-over-year basis.
Global units sold went down 9% year over year and came in at 172.3 million in 2018.
For full year 2019, Groupon expects adjusted EBITDA outlook to be roughly $270 million.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -1500% due to these changes.
Currently, Groupon has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Groupon has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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