UBS analysts Eric J. Sheridan, Vishal J. Patel, and Timothy E. Chiodo stick with their
Netural rating for Groupon Inc (NASDAQ:GRPN), but tweak their estimates to reflect a 2014 projection of higher revenue but lower margins.
We were positive on: a) the traction gained by the EMEA 1P business (revs made a significant contribution, $97mm in Q4 ’13 vs. $9.3mm in Q3 ’13); b) signs of continued mobile traction (~50% of global transactions via mobile Dec.’13); c) a reacceleration in rev growth (20% YoY in Q4 ’13 vs. 5% YoY growth during Q3 ’13); & d) the decision to exit China demonstrates management discipline on capital allocation. We were less positive on: a) greater skew toward 1P vs. 3P than we had expected (partly due to seasonality); b) guidance calling for higher levels of marketing investment (i.e., $25mm incremental in Q1 ’14, expectations for FY14 EBITDA only slightly above ’13 levels) than we had anticipated; & c) weaker than expected ROW results, although TMon is expected to contribute to FY14 billings growth, albeit at a lower take rate (~14% for TMon vs. > 30% for Groupon ROW 3P during 2013).
Below is our 13F roundup for some high profile hedge funds for the three months to the end of March 2021 (Q1). Q1 2021 hedge fund letters, conferences and more The statements only include equity positions as 13Fs do not include cash and debt holdings. They also only include US equity holdings. Funds may hold Read More
What To Do With the Stock?
In 2014, we expect Groupon Inc (NASDAQ:GRPN) to continue to make progress in its business transition (i.e., more mobile & “pull” centric) albeit with upward revenue volatility & downward margin volatility. As demonstrated by Q1 guidance, significant investment & execution hurdles remain (i.e., TMon & ideeli integration, marketing to increase awareness of pull, SEO/SEM, a 2nd or even 3rd fulfillment center). While we believe that Groupon Inc (NASDAQ:GRPN) management is executing against the right strategy to create long-term value, we stay on the sidelines given near-medium term margin pressures & execution hurdles.
Estimate Changes – Higher Revenues, Lower Margins
New Q1’14 ests are revs $752mm (from $691mm); Adj. EBTIDA $40.2mm (from $100mm), & Adj. EPS $0.01 loss (from $0.07). Our new FY14 ests are revs $3.28b (from $2.96 b); Adj. EBITDA $300mm (from $395mm), & Adj. EPS $0.17 (from $0.26).
Valuation: Maintain Neutral, Reduce PT to $8.75
New PT is $8.75 (prior: $11), based on a weighted avg approach (EV/Sales, EV/EBITDA, EV/FCF) now applied to ’13-’15 ests. The main driver of our reduced PT was lower EBITDA ests, a slower EBITDA CAGR, & a reduced EBITDA multiple.