Groupon Inc. Analysts Get It Wrong, Again

If you've followed Groupon (NASDAQ: GRPN  ) for any period of time, this has to feel like deja vu: CEO Eric Lefkofsky and team deliver stellar results nearly across the board, for both the fourth quarter and the year, and get absolutely blasted by Groupon analysts. The thing is, a lack of analyst support is nothing new for Groupon, yet it has consistently performed for much of the past year, and there's no reason to believe that's going to change.

The specs
You'd think that destroying analysts' revenue expectations, which is exactly what Groupon did last quarter, would leave shareholders and industry pundits smiling. Groupon's 20% year-over-year jump in revenues in Q4, from 2012's $638.3 million to last quarter's $768.4 million, obliterated analysts' outlook. The "experts"? The consensus was revenue of $718 million and earnings of $0.02 a share, which Groupon doubled in Q4, chiming in with a profit of $0.04 a share.

Earnings before interest, taxes, depreciation and amortization was up for both the quarter and the year, as were the number of active customers and Groupon's mobile users. Lefkofsky's made it clear that Groupon had to adapt to what is rapidly becoming a mobile world, and last quarter's results were a strong indication that it's working: Nearly half of all transactions last quarter were completed using a mobile device.

And it's always intriguing to see the consistent growth in Groupon's Goods unit. You may recall, when former CEO Andrew Mason rolled out Goods about two and half years ago, analysts bemoaned the negative impact on Groupon's margins, not to mention the highly competitive nature of the retail business.

The notion that Groupon Goods could become a $2 billion-a-year unit, which Mason suggested at the time, seemed far-fetched, at least to analysts. Now, fast-forward to Q4's results, and worldwide goods generated just shy of $600 million in Q4 alone. Maybe there was some method to Mason's madness.

Toss in Groupon's consistently sound balance sheet -- it's sitting on about $1.24 billion cash and equivalents, up from last year's $1.2 billion -- and its 21% drop in stock price is even harder to fathom.

So, what's the problem?
Guidance for the upcoming quarter, plain and simple, was the basis for Groupon's sell-off. Earnings, according to analysts, were expected to be around $0.05 a share in Q1 2014, rather than the $0.02- to $0.04-per-share loss Groupon announced. Why the disparity?

Apparently, analysts didn't account for the more than $300 million in acquisitions that closed this quarter -- $260 million for e-commerce site Korea Living Social, the holding company for Ticket Monster, and $43 million for online retailer ideeli. The one-time costs associated with the transactions, along with marketing expenses getting them ramped up, will hit Groupon's bottom line, but what's surprising about that? The fact that revenues for Q1 are expected to be in the range of $710 million to $760 million, compared with last 2013's Q1 $601 million, seems to have gotten lost in the negativity.

Final Foolish thoughts
This is becoming a quarterly ritual for Groupon: It increases revenues in virtually all its business units and aggressively expands into new markets, and analysts bemoan its future prospects, putting near-term pressure on its stock price. Groupon's lack of analyst support and subsequent stock price swings could be frustrating, if taken at face value.

But analyst expectations don't tell the entire Groupon story. It was a buy at over $10 a share based on continued growth prospects, two sound acquisitions that will further Groupon's efforts to ramp up its travel and retail revenues, and a strong balance sheet. At $8 a share? Groupon's an absolute steal for mid- and long-term growth investors.

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  • Report this Comment On February 22, 2014, at 7:21 PM, Druggy52 wrote:

    1) GPRN reported a loss of $95M for 2013

    2) GPRN has accumulated losses of $850M

    3) You state that GRPN has cash of $1.2B but make no mention of:

    Merchants Payable of $750M

    Accrued Expenses of $230M

    Other Liabilities of $130M

    How much cash is left after deducting the above amounts?

    4) GRPN has a book value of $700M less intangibles of $250M = Net Book Value of $450M or about 60 cents per share.

    And you think that GRPN is worth $7 BILLION or $10 per share?

    Are you still residing in the tech bubble days?

    May I welcome you to 2014?

  • Report this Comment On February 23, 2014, at 1:31 PM, etbob1 wrote:

    About time. You guys blast my stock every month without fail. Now your stock gets the short stock price manipulators treatment writ large. Enjoy!

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