Groupon’s (GRPN, Financial) transition efforts seems to be paying off for it as the company yet again posted good improvement in the revenue in the recently released quarter. This also attracted investors as the company showed up some good improvement in the share price. However, the company did post loss on the earnings front still the management is confident of improving and performing better in the coming quarters. To narrow the loss, the management is also making strategic moves which are really paying off for Groupon. Let us have a look at Groupon’s strategy.
Quarterly performance
In the recently reported quarter, Groupon reported a 27% increase in the revenue amounting to $757.1 million on the board. The revenue also beat analysts’ estimates of $746.6 million on top line. The company also posted good improvement in the gross profit. It posted a gross profit of $380.1 million as compared to $359.6 million which it posted in the same quarter last year. On the earnings front, Groupon posted a net loss of $21.2 million, $0.03 per share. This also missed analysts’ estimates of $0.01 per share.
Groupon is improving and it seems to have lot of steam. The management is pleased to have posted fantastic results. The company is expecting good improvement in the billings. It has already seen 39% increase in the billings in the recently reported quarter which indicates that Groupon has lot of opportunities to perform better in future quarters. The company is focusing on various aspects to improve its profitability. It is continuing with its strategy with of becoming a leading mobile commerce destination.
Strategies
Groupon is focusing on some key strategic moves to achieve profitability. It is mainly focusing on improving the business in North America as it is seeing some robust traction for it across the reason. In addition, the company will be well focusing on improving the gross margin and operating efficiency of its good business. However, Groupon is seeing positive response from the international markets and it is focusing on improving its international operations.
To achieve this, Groupon is making efforts to reduce the losses and improve its margins. Groupon is pleased with the initiatives that it has taken to reduce the loss. It seems that the initiatives are well in line with the company’s expectations and it has managed to reach the breakeven. In the coming quarters, Groupon is confident of achieving better profitability.
In Asia, Groupon is on fire, mainly driven by TMON. It has seen about 60% growth in the billings over the year and it is expected to grow more as the recent traction for the product indicates. Groupon is also hiring financial advisors to help the company to make strategic approach to its objectives to gain profitability. With these efforts, Groupon is seeing significant growth opportunities with TMON.
Besides these, Groupon is also trying to look out for other opportunities to improve the value of share-holder. This is a long term objective of the company and it wants to strengthen its long term prospects in this fast growing competitive e-commerce market.
In addition, Groupon is also counting on mobile segment which is also seeing good traction. In many countries Groupon is seeing positive response and it is expecting to reach a product mix fairly above 65%. In addition, Groupon is also selected to be partner of Apple for its new Apple pay product and with the growing sale of Apple product across the globe also strengthens Groupon’s chances to better profitability in future.
Groupon is also making efforts towards increasing supply. It already has around 300,000 deals available on its site and to further improve this it is improving its selection every day. It is also adding 700 merchants a week to add more value to its efforts in these areas. It is expecting this momentum to generate over $20 million incremental billings annually. The increase in the billing will surely add meaningful revenues to Groupon making it a good long term holding.
Conclusion
Moving on to the fundamentals, the company doesn’t have a trailing P/E because it still making losses but the forward P/E of 44.12 shows terrific earnings growth in future. Groupon is showing some good response to its efforts and the way in which it is narrowing its losses shows that the company can be a good long term prospect. In the next five years its earnings are expected to grow at a CAGR of 27.33% which is also more than the industry average of 20.32%. All these facts indicates that Groupon is a good pick as of now and the investors can definitely include the stock in their portfolio.
