Groupon soars on higher adjusted earnings, expense cuts

By Christine Huang

Groupon Inc.’s stock skyrocketed 22.8 percent to $4.64 per share after the company reported increased revenues, better-than-expected adjusted income and strategic changes including reduced expenses and a scaled-back global footprint.

Groupon, a Chicago-based daily local deals platform for goods, services and experiences, has over 52 million active customers worldwide, as of the fourth quarter ended Dec. 31.

The company reported a net loss of $52.6 million, or 9 cents per diluted share, in the fourth quarter, compared with a net loss of $46.5 million, or 8 cents per share, in the year-ago quarter. Analysts polled by Bloomberg expected a net loss of 2 cents per share.

However, Groupon also reported adjusted income of $42.5 million, or 7 cents per share, beating analyst expectations of $14.3 million, or 3 cents per share. Adjusted income excludes restructuring charges, acquisition-related expenses, stock-based compensation, writedowns of minority investments, amortization, losses from discontinued operations, non-operating foreign currency losses from country exits, and special charges, among other items.

Revenues in the fourth quarter were $934.9 million, up from $917.2 million a year earlier, beating the analysts’ estimate by 2.2 percent.

Groupon has cut costs, scaled back the sale of goods, improved customer experiences and returned to offline marketing campaigns, CEO Rich Williams said in the conference call.

“Our initiatives were critical, and in some cases tough, steps we needed to take in order to give ourselves the foundational strength to build the daily habit for local commerce,” Williams added.

As of Dec. 31, the company had reduced its global business operations from 47 countries to 24. In the earnings call, Chief Financial Officer Michael Randolfi announced the company’s decision to further shrink its global business and focus on 15 core countries by the beginning of the second quarter.

“We have viewed the company’s successful efforts to streamline its International footprint and reduce its Goods Billings as fundamentally correct,” Mark Mahaney, analyst at RBC Capital Markets, said in a January research report. He changed his rating of Groupon stock from underperform to sector perform.

Cost-cutting helped drive greater efficiency in the fourth quarter. Selling, general and administrative costs, which refers to non-production costs, decreased 11.6 percent to $254 million.

The company also reduced its sales force in the quarter. The total number of employees worldwide decreased 15.7 percent to 8,323 from 9,872 in the prior- year quarter.

The decline in the value of investments referred primarily to a $36 million writedown of a stake in Ticket Monster, an online ticket marketplace.

“In early 2017, we exchanged our investment in Ticket Monster for a more senior security, which will provide us more downside protection going forward, but less potential upside,” said Michael Randolfi, chief financial officer, in the conference call.

Groupon added 2 million North American customers in the fourth quarter, half of whom came from the acquisition of competitor LivingSocial Inc. last year. Groupon’s total active customer base increased 7.7 percent to 52.7 million users in the fourth quarter from 48.9 million users in the year-ago quarter. Active customers have made a purchase in the past 12 months.

Moving forward, however, Groupon continues to face significant challenges, Mahaney noted in his report. Competition in the local sphere from companies like Amazon, Google and Facebook poses a key threat.

Increasing the number of merchants available on the platform will drive better user experiences, said Williams in the conference call.

“Customers have to find what they’re looking for, which requires a lot more supply, more density, [and] more and better quality merchants on the platform,” he said.

Williams added that in an effort to attract more merchants to the platform, Groupon will introduce low-discount and even some market-price offerings in addition to its traditional deep-discount offerings.

“‘We’re going to continue to invent around that low-friction high-flexibility experience over the course of the next couple years,” he said.

Photo at top: Groupon is headquartered in Chicago. (Source: Groupon Inc.)