Groupon Inc: Turnaround Plan Could Send GRPN Stock Higher

GRPN StockGroupon Inc (NASDAQ:GRPN) stock lost a significant market value since its initial public offering (IPO) on November 4, 2011. It was once considered one of the fastest-growing companies, but GRPN stock failed to maintain its growth and profitability.

GRPN stock traded to as low as $2.15 per share over the past 52 weeks. The online daily deals company managed to regain some of its stock value, trading around $5.40 per share, up more than four percent on September 27. Groupon stock is still down 73% from its debut price of $20.00 per share.

Some market observers believed that Groupon’s stock already reached its bottom, and they expected it to move up based on a recent technical analysis.

How about the fundamental analysis: does it support a bull run for GRPN stock?  Investors always look into the financial statements of the company to have a good perception of its performance in the future.

Groupon Stock Financial Situation

Groupon stock managed to report a net income of $20.67 million, or $0.03 per share, in 2015 from losses in the previous years. In 2014, the company reported a loss of $73.09 million, or $0.11 per share. GRPN stock’s annual revenue slightly increased from $3.04 billion in 2014 to $3.12 billion last year.

The company’s total assets were $1.8 billion and its total debt was $57.72 million in 2015. Its reported total cash on hand was $853.36 million by the end of the year. Its free cash flow was -$163.27 million.

Based on its figures, Groupon stock has a strong balance sheet. Its total assets and cash on hand are significantly higher than its total debt. The company can easily pay off its debt anytime.

In the second quarter of 2016, GRPN stock reported a non-generally accepted accounting principles (GAAP) net loss of $6.8 million, or $0.01 per share. Its revenue was $756.0 million. Its free cash flow was -$70.4 million. The company ended the period with $780.1 million in cash and cash equivalents.

For the full fiscal 2016, management expected the company to deliver adjusted   earnings before interest, taxes, depreciation, and amortization (EBITDA) of around $140.0 million to $160.0 million and revenue of about $3.0 billion to $3.10 billion. (Source:  “Groupon Announces Second Quarter 2016 Results,” NASDAQ, July 27, 2016.)

Based on GRPN stock’s full-year guidance, its revenue may be slightly lower than last year. The numbers showed that Groupon stock is still struggling.

Making Progress in Turnaround Strategy

On the bright side, Groupon’s management is committed to turning around the company and is focused on delivering returns for shareholders. It is also engaged in maintaining its financial flexibility and strong balance sheet.

Management is implementing its four priorities to achieve its goals, including increasing its active customers, improving operating leverage, enhancing the unit economics of its “Shopping” segment, and improving customer experience to accelerate purchase frequency over time.

During Groupon’s second-quarter earnings call with analysts and investors, CEO Rich Williams said the company is making progress on executing its priorities. Williams noted that the company added almost 1.1 million new customers, and its local billings increased nine percent in North America. According to Williams, the growth was driven by the company’s expanded customer acquisition efforts to make Groupon a daily habit for users.

Williams emphasized that the incremental marketing spend continues to perform, and customers are spending as expected. Since renewing its investment in customer acquisition eight months ago, Groupon has already added 2.7 million active customers.

Williams also reported that the company is more than halfway through its announced restructuring plan. Groupon reduced its footprint from 47 to 27 countries. The company reduced its headcount by 19% to 8,605 by the end of the second quarter.

According to Williams, Groupon has organized its internal operations to create global leverage in customer service, deal factory, and engineering. The company’s target is to save $12.0 million in selling, general and administrative (SG&A) expenses annually.

Groupon has made progress in improving its Shopping business; margins increased for the third consecutive quarter to 13.4%. Its shopping billings in North America climbed eight percent and gross profit went up by more than 37%.

The company revamped its mobile app to enhance customer experience. According to Williams, Groupon is seeing strong customer satisfaction scores from internal metrics and external benchmarks. Its net promoter score is 73, which remains above the industry averages for retail, media, and technology companies.

Groupon has expanded “OrderUp,” its on-demand food delivery service, to more than 40 Providence, Rhode Island restaurants. Providence is considered a top food destination. (Source: “Groupon Dishes Out Order-Up from Groupon—On-demand Food Delivery from Top Providence Restaurants,” BusinessWire, September 27, 2016.)

The Bottom Line on GRPN stock

Groupon management appears to be on the right track but still needs to do much work to ensure its recovery. Investors seem to be happy with its progress. GRPN stock will continue its upward momentum if the company starts generating profits; a sign that its turnaround strategy is effective.

It is still uncertain whether Groupon can pull off long-term growth and profitability. Management needs to ensure that the company remains competitive and relevant in the market.  Its CEO is confident that Groupon will become a daily habit in local commerce.

Most of the Wall Street analysts covering Groupon stock are advising investors to hold their position in the company.  GRPN stock is expected to trade for as much as $6.50 per share, an increase of 25% from its current trading price.