Groupon's (GRPN) Quarter Was Solid But There Is A Long Road Ahead - Wells Fargo

Wells Fargo analyst, Trisha Dill, cut the valuation range on Groupon (NASDAQ: GRPN) despite the company printing its first decent quarter in some time. The strength could be seasonal, the coming year looks to be lumpy in terms of results and the company stopped issuing quarterly guidance.

Groupon reported solid 4Q’15 results with adjusted EBITDA of $67MM beating the street at $52MM, and guidance of $40MM -$60MM. Total sales of $917MM also Consensus of $849MM, and came in above the high end of guidance of $815MM- $865MM. Total company gross profit was $371.7MM vs. the street at $350.3MM. Non-GAAP EPS was $0.04, vs guidance of -$0.01 to $0.01. Billings declined 1% y/y (+4% excluding foreign exchange) to $1.71B vs. the Street's expectation for $1.65B.

North America billings of $1.05B grew 10.7% vs. consensus of $1.03B, EMEA billings declined 2.1% ex-F/X at $487.1MM relative to the Street of $468.8MM. Rest of world (ROW) billings were $169.5MM, relative to the Street of $167.4MM; a 6.7% decline on F/X neutral basis.

Groupon’s FY16 revenue guidance remains unchanged at $2.75-$3.05B, but the company raised its adjusted EBITDA guidance range by $5MM from $75MM-$125MM to $80MM -$130MM vs. Consensus at $103.5MM. The company noted it will no longer provide quarterly guidance and will instead update the annual outlook each quarter.

Given the vast majority of incremental marketing to drive customer acquisition has yet to be deployed, execution could be lumpy this year and, more importantly, the jury is still out on whether Groupon can right the ship in its International business, return to sustainable double digit growth in revenue and billings, and drive meaningfully higher customer growth (y/y customer growth in Q4 was similar to the growth in Q3 overall and in North America).

No change to the Market Perform rating but the valuation range goes from $3.00-$3.50 to $2.50-$3.00 based on lower market multiples.

For an analyst ratings summary and ratings history on Groupon, Inc. click here. For more ratings news on Groupon, Inc. click here.

Shares of Groupon, Inc. closed at $2.24 yesterday.

You May Also Be Interested In

• Morgan Stanley Double Downgrades AU Optronics (2409:TT) (AUO) to Underweight
• Southern Co. (SO) PT Raised to $73 at BofA Securities
• Dynex Capital (DX) PT Lowered to $12.25 at Keefe, Bruyette & Woods