Groupon stock plunged after the company’s latest earnings report as the results were solid but guidance disappointed Wall Street and triggered a number of downward estimate revisions. But was the report really as bad as most seem to think? It seems as if analysts haven’t really changed their views on the company much despite their downward revisions.
Groupon guides for weakness
Groupon maintained its full year guidance of more than $315 million in adjusted EBITDA, which is slightly behind the consensus estimate of $319 million for the full year. The daily deals giant also maintained its guidance of between $3.15 billion and $3.3 billion in billings.
However, Groupon gave extremely weak second quarter guidance of between $700 million and $750 million in revenue and between $55 million and $75 million in adjusted EBITDA. Consensus estimates had suggested second quarter revenue of $761 million and $71 million in adjusted EBITDA.
Groupon price target cut at Evercore
In a report dated May 5, Evercore ISI analysts Ken Sena, Conor McDade and Andrew McNellis reiterated their Hold rating but trimmed their price target for Groupon from $8 to $7.50 per share. Groupon posted revenue of $750.4 million, adjusted EBITDA of $76.2 million and adjusted earnings of 3 cents per share.
They trimmed their second quarter revenue estimate 8%, pushing it down to $736 million. Their EBITDA estimate declined 4% to $68 million. They trimmed their full year revenue estimate 4%, pushing it down to $3.2 billion, adding that the reason for their lower revenue estimates is mostly related to currency headwinds.
The Evercore team said that even though investors remain concerned about return on investment for merchants, Groupon’s inventory has increased from 330,000 at the end of the previous quarter to 35,000 at the end of the March quarter. They also point that search-related engagement has improved. These two factors are both signs that Groupon’s platform is healthy, adding to the potential for mobile traction.
Groupon actually raised guidance
Sterne Agee CRT analysts Arvind Bhatia and Brett Strauser said they have maintained their Buy rating and bullish price target of $12 per share on Groupon. They point out in their May 6 report that on the surface, Groupon guided for between 11% and 16% growth on a currency neutral basis, which makes it look like management reduced their previous guidance of more than 15% year over year growth to more than 13.5% year over year growth. However, last month Groupon announced plans to sell its Ticket Monster business, so when adjusting for that sale and currency exchange rates, management actually increased their revenue guidance from what they offered at the investor day in November.
After excluding Ticket Monster, the original 15% year over year growth guide is at the low end of the new 11% to 16% guidance range. As a result, they say Groupon management actually upped their revenue growth target by about 250 basis points after removing Ticket Monster and adjusting for currency exchange.
Groupon making progress
The Sterne Agee CRT team continues to believe Groupon management is successfully executing the transformation of the company. In their May 5 report, RBC Capital Markets analysts Mark Mahaney and Rohit Kulkarni echoed the positive comments on Groupon’s transformation progress.
They maintained their Sector Perform and $8 per share price target, although they also slightly reduced their estimates. For 2015, they’re now estimating $3.19 billion in revenue, a 3% decline from their previous estimate. They also trimmed their adjusted EBITDA estimate by 3% to $335 million.
