Sterne Agee analysts Arvind Bhatia and Brett Strauser rate Groupon as a Buy and raise the price target to $12.00 as Groupon closes its Ticket Monster acquisition.
Groupon Inc (NASDAQ:GRPN) closed the acquisition of Ticket Monster (LivingSocial Korea) sooner than expected. Analysts at the firm believe Ticket Monster has the potential to add $1B in billings in 2014 and expand Groupon’s size by more than 15%. Separately, Groupon’s comment in the FAQ section on its website related to the acquisition: “We are not updating or affirming the guidance that we gave on the earnings call on Nov 7, 2013,” may give rise to confusion about the intended message regarding 4Q trends.
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Ticket Monster should be additive
Given Ticket Monster’s strong billings growth rate (+50% y/y consistently) and assuming some basic post-transaction synergies, analysts believe Ticket Monster should be additive to Groupon Inc (NASDAQ:GRPN)’s adjusted EBITDA in 2014. They note Groupon has indicated it does not expect material cost synergies yet. Analysts are leaving their 2014 estimates for Groupon unchanged, pending 4Q results next month.
Groupon acquires Ticket Monster earlier than expected
Groupon Inc (NASDAQ:GRPN) recently agreed to acquire Ticket Monster from Living Social and had previously indicated a closing date of 1H’14. Last night, GRPN announced it has already completed this acquisition. The final purchase price was in line with the prior announcement of $260M, including $100M in cash and $160M in shares (13.8M shares) of Groupon.
Ticket Monster’s background
Ticket Monster is a leading Korean e-commerce company with over $800M in annual billings, 4M active customers, with 50% of its transactions coming from mobile devices. T-MON has been consistently growing its billings in excess of 50% y/y. In comparison, Groupon Inc (NASDAQ:GRPN)’s billings in 2013 are estimated to be $5.7B (+6% y/y), driven by more than 43M active customers and with 40% of its worldwide transactions coming from mobile. For the 9-months ended 9/30/13, Ticket Monster’s reported billings, revenue and adjusted EBITDA were $572.7M / $78.5M / $0.7M, respectively. Analysts note that Ticket Monster’s take-rate of ~14% compares to Groupon’s ~40% take-rate. However, this is because of Ticket Monster’s product mix, which includes 65% Goods (low margin), 20-25% Local and the remaining from Travel. Also, importantly, most of the revenue (including Goods revenue) is recorded on a net basis. Ticket Monster’s average annual billings/active customer appears to be about $200 or higher than Groupon’s $131.
Positives for Ticket Monster
Ticket Monster appears to have a very similar strategy as Groupon Inc (NASDAQ:GRPN), which should make integration easier. Ticket Monster is focused on a mobile marketplace, its revenue is diversified across Local, Goods and Travel, and less than 10% of its revenue is generated directly from email. Overall, Ticket Monster and its management team (led by its current CEO, Daniel Shin) is expected to provide Groupon Inc (NASDAQ:GRPN) a strong foothold for further expansion in Asia.