Company’s stock is falling this morning after rising earlier this year due to a stock repurchase initiative; the Chicago-based company has exited 11 markets in an effort to scale back to profitable operations
Ah, Groupon. The quintessential Chicago start-up. Unfortunately, I don’t mean that as a compliment. There is something about the Midwest way of thinking that seems to prevent them from enjoying the kinds of success West Coast companies do.
The first thing is the philosophy regarding who gets to get rich at the start-up. I find that West Coast start-ups don’t limit the number of people who can become millionaires. In fact, it is a source of pride if the number gets quite big. In the Midwest it feels as though founders are looking out for themselves only. Also, West Coast start-ups generally have a good feeling about when it is a good time to sell, often quicker than many would like. Still, selling early guarantees a good payday for the investors, let alone the founders and early employees.
There are lots of exceptions, both on the West Coast and in the Midwest, but I think there are elements of truths to the cliches.
As far as Groupon goes, it is hard to imagine that it is still around, but it is, and it did $673M in revenue in Q1, only slightly lower than it did last year in the same quarter. It has has a market cap exceeding $2B, so it must be doing some things right.
For instance, in Q1 of this year it cut its losses a bit: net income was a loss of $24.4M, versus a loss last year of $49.1M.
Last year Groupon acquired its main competitor in the online deal marketplace, LivingSocial. But most investors know that this is not a sustainable model, so the company made a series of acquisitions over the past couple of years looking to diversify. Some working out, others begin discarded.
And the company continues to get investors onboard (amazingly enough). Chinese online retailer Alibaba Group acquired a 5.6 percent stake in Groupon early last year, and later Atairos Management invested $250 million in the company.
But investors might we running out of patience, as the stock is down 12-14 percent this morning in pre-market trading (it’s really jumping around). Then again, there is a lot of investor money still out there, so who knows who will invest next in Groupon.
Here is Groupon’s Q1 earnings statement:
CHICAGO, Ill. — May 3, 2017 — Groupon, Inc. today announced financial results for the quarter ended March 31, 2017.
“In the first quarter, we continued to make solid progress in our mission to be the daily habit in local commerce,” said CEO Rich Williams. “Our focus on growing customers in our marketplace, significantly improving the customer experience and continuing to streamline and simplify our business helped drive a 42 percent year-over-year increase in Adjusted EBITDA and gross profit of $309 million for the quarter.”
As of March 31, 2017, Groupon has completed the dispositions of our operations in 11 countries. Accordingly, the results of our operations in those 11 countries are presented as discontinued operations, appearing net of tax in a single line in the company’s consolidated statements of operations. Prior period results have been updated to reflect that discontinued operations presentation.
First Quarter 2017 Summary
North America
- North America gross profit in the first quarter 2017 increased 2% to $220.9 million from $215.9 million in the first quarter 2016. In Local, gross billings increased 9% and revenue increased 4%, resulting in 3% growth in gross profit as increased transaction volume was partially offset by higher promotional activity. In Goods, gross billings and revenue declined 11% and 12%, respectively, while gross profit increased 1%. Gross billings reflect the total dollar value of customer purchases of goods and services.
- We are increasingly focusing the business on initiatives that are intended to maximize gross profit. These changes, including an increasing shift toward offerings in our higher margin Local category from our Goods category, had an unfavorable impact on North America revenue in the first quarter 2017 despite increased overall billings. North America revenue decreased 5% driven by a 12% decline in Goods direct revenue transactions, which are presented on a gross basis.
- North America active customers reached 31.6 million as of March 31, 2017, adding 500 thousand during the first quarter 2017. Active customers represent unique user accounts that have made a purchase through one of our online marketplaces during the trailing twelve months.
International
- International gross profit declined 15% (12% FX-neutral) in the first quarter 2017 to $88.5 million as we experienced some execution challenges and short-term disruption from our country exits. Gross profit declined across all categories on an FX-neutral basis, including a 4% decline in Local, 9% decline in Travel, and 31% decline in Goods. We made progress across several supply, marketing, and product initiatives toward the end of Q1 and into Q2, and believe our current initiatives will enable us to stabilize gross profit internationally in the coming quarters.
- International active customers were roughly flat sequentially at 16.7 million as of March 31, 2017.
Consolidated
- Gross billings were $1.36 billion in the first quarter 2017, down 1% (flat FX-neutral) from $1.37 billion in the first quarter 2016.
- Revenue was $673.6 million in the first quarter 2017, down 4% (3% FX-neutral) from $698.4 million in the first quarter 2016.
- Gross profit was $309.5 million in the first quarter 2017, down 3% (2% FX-neutral) from $320.1 million in the first quarter 2016.
- SG&A declined 12% year-over-year in the first quarter 2017 as we continue to drive operational efficiency through automation and our more streamlined organization, which we expect not only to improve our customer experience but also create greater operating leverage over time. We ended the first quarter 2017 with headcount of 7,120 and took actions in April 2017 to further rationalize our cost structure, reducing headcount by approximately 4%.
- Marketing was $86.3 million, down 1% year-over-year. We launched our offline campaign “Save Up to $100 a Week on What You Do Every Day” toward the end of February 2017.
- Net loss from continuing operations was $20.9 million in the first quarter 2017, compared with $43.5 million in the first quarter 2016. Net loss attributable to common stockholders was $24.4 million, or $0.04 per share. Non-GAAP net income attributable to common stockholders was $5.2 million, or $0.01 per share.
- Adjusted EBITDA, a non-GAAP financial measure, was $44.8 million in the first quarter 2017, compared with $31.5 million in the first quarter 2016.
- Global units sold declined 3% year-over-year to 45.7 million. Units in North America were flat driven by high single digit growth in Local and declines in Goods, while International declined 9%. Units are defined as purchases made through our online marketplaces, before refunds and cancellations.
- Operating cash flow was $67.5 million for the trailing twelve month period as of the first quarter 2017. Free cash flow, a non-GAAP financial measure, was $5.0 million for the trailing twelve month period as of the first quarter 2017.
- Cash and cash equivalents as of March 31, 2017 were $691.0 million, and we had no outstanding borrowings under our $250.0 million revolving credit facility.
Definitions and reconciliations of all non-GAAP financial measures are included below in the section titled “Non-GAAP Financial Measures” and in the accompanying tables.
Share Repurchase
During the first quarter 2017, Groupon repurchased 7,336,681 shares of its common stock for an aggregate purchase price of $26.0 million. Groupon repurchased 31,744,424 shares for an aggregate purchase price of $125.0 million for the trailing twelve month period as of the first quarter 2017. Up to $169.0 million of common stock was available for repurchase under Groupon’s share repurchase program as of March 31, 2017. The timing and amount of any share repurchases are determined based on market conditions, limitations under our Amended and Restated Credit Agreement, share price and other factors, and the program may be discontinued or suspended at any time.
Outlook
Groupon is reiterating its outlook for 2017, which reflects current foreign exchange rates, as well as expected marketing investments and cost benefits associated with our streamlining initiatives. The basis for our full year 2017 guidance is continuing operations.
- For the full year 2017, Groupon expects gross profit to be in the range of $1.30 billion to $1.35 billion.
- Groupon expects Adjusted EBITDA to be in the range of $200 million to $240 million in 2017.
