Morningstar | Groupon Posts Disappointing 4Q Results as North American Users Dwindle; Lowering FVE to $4.20. See Updated Analyst Note from 13 Feb 2019
Groupon reported fourth-quarter revenue lower than our expectations largely due to declines in North America customers as the firm tries to tackle higher-quality customers elsewhere. We think such customers will be hard to keep in the long term, even if the international market poses better prospects at the moment, as Groupon lacks the necessary network effect or switching cost economic moat sources.We are lowering our fair value estimate to $4.20 from $4.60 after adjusting for the quarter’s poor performance and the consequences we think this bodes for the no-moat firm’s future. We now do not expect Groupon to return to revenue growth until 2021, after which it could realize additional operating leverage. The stock had reached 3-star territory after increasing 24% year to date. While it retreated around 11% after its disappointing earnings, we do recommend a wider margin of safety before investing in this no-moat and very high uncertainty name.
Revenue performance in the fourth quarter was disappointing, as the firm posted $800 million on the top line, representing an 8% year-over-year decline, mainly due to the 800,000 lower North America customer count, or a decline of 6% from last year. This was partially offset by a net year-over-year increase of nearly 5% in international users. At the same time, however, the promotions necessary to attract consumers and increase transactions lowered margins.
Groupon expects North American customer decline to be a mainstay, at least in 2019, though higher gross profit per customer is expected to be somewhat of a buffer for this hit as North American customer quality is projected to improve. Groupon expects to report $2.4 billion in 2019 revenue, as a result. The firm will watch the North American base shrink over the coming year as it looks to focus marketing spend efforts on international markets, hinting that it’s cheaper to obtain high-quality customers in international markets than North America. We continue to believe Groupon lacks a network effect moat source and therefore think that even if international customers are higher-quality initially, such quality will diminish given high costs associated with retaining customers while trying to acquire new ones.
Groupon operates online local commerce marketplaces that connect merchants to consumers by providing goods and services through its websites, groupon.com, and its mobile applications. The company provides goods and services in three categories: Local, which includes offerings from local and national merchants, and local events; Goods, which provides customers the ability to find discounted merchandise across multiple product lines, including electronics, sporting goods, jewelry, toys, household items and apparel; and Travel, which features travel offers at both discounted and market rates, such as hotels, airfare and package deals covering both domestic and international travel.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.