UBS Global Research analysts Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo maintain a Neutral rating for Groupon Inc (NASDAQ:GRPN) as the company announced its Q4 results. They also take a critical look at the company’s 2014 guidance.
Groupon’s Q4 2013 Results
Groupon Inc (NASDAQ:GRPN) reported revenues of $768mm (vs. our estimate of $697mm and Street estimate of $718mm), for 20% YoY growth, on gross billings of $1.59b (vs. our estimate of $1.60b). CSOI came in at $47.9mm (vs. our estimate of $51.6mm and Street estimate of $51.9mm). 3P revenues were $402mm (vs. our estimate of $443mm), while 1P (Direct) revenues were $367mm (vs. our estimate of $253mm). EMEA 1P (Direct) revenues made a significant contribution ($97mm in Q4 2013 vs. $9.3mm during Q3 2013).
Q1 2014 guidance vs estimates
Groupon Inc (NASDAQ:GRPN) guided revenue for Q1 2014 to a range of $710mm-$760mm (vs. our current estimate of $691mm and Street estimate of $669mm). Adjusted EBITDA (no longer emphasizing CSOI) is expected to be between $20mm-40mm (vs. our current estimate of $99.8mm and Street estimate of $97.1mm). Ticket Monster & ideeli are expected to contribute ~$50mm in Q1 revenue, but have a ~$20mm negative impact on Adjusted EBITDA (integration and investment behind these businesses). Additionally, Groupon plans to make ~$25mm in incremental investments (marketing & growth) in Q1 2014.
FY 2014 current estimates and guidance
Our current revenue estimate is $3.0b (vs. Street estimate of $2.9b), while our Adjusted EBITDA estimate is $395mm (vs. Street estimate of $395mm). Groupon Inc (NASDAQ:GRPN) plans to make investments for growth in 2014, leading to an expectation for FY 2014 Adjusted EBITDA to come in only slightly above 2013 levels (which came in at ~$287mm). In our view, the guidance implies that Groupon sees a degree of low hanging fruit in terms of growth opportunities, and plans to invest (1H weighted) in awareness of the pull platform, SEO/SEM, and other tactics to entice both merchant and consumer adoption of the platform. We will be reviewing these estimates to reflect updated information from tonight’s earnings call.
Valuation
Our price target is $11, based on a weighted average approach (EV/Sales, EV/EBITDA, EV/FCF).
