Groupon ($GRPN) continues to rise sharply today and has an increase of over 11% this morning. On November 5, the company surprised friend and foe with the announcement of its third quarter results, which turned out to be significantly more positive than initially thought. With a quarterly profit of $0.15 per share, Groupon beat most of the predictions of analysts and stock market experts.
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Figures don’t lie and that caused an increase
The consensus estimated earnings per share were initially – $1.72 versus $0.01 with Q3 2019 and the consensus estimate of earnings was $310.2 million – representing -37.4% year-over-year. From 2018 to date, Groupon has beaten 63% of EPS estimates and 50% of revenue estimates.
It is now known that sales in the third quarter of this year will be $304 million with a gross profit of $160 million. During this period, a loss from continuing operations of $17 million and an adjusted EBITDA of $31 million was recorded. GAAP net loss per diluted share is $0.57 and non-GAAP net earnings per diluted share is at $0.15. Finally, Groupon ended the third quarter with $779 million in cash. But is that all why Groupon continues to increase on the stock market today?
In summary, the quarterly loss shrank from $16.7 million to $16.3 million, or $0.57 per share. Adjusted earnings were approximately $31 million versus $50 million in the third quarter a year ago.
Groupon is clear about the future
Groupon is committed to growing the business again and continuing the remarkable progress that has been made. The company increased inventory by 50% in the test markets and launched several product features, all aimed at increasing Groupon’s ability to drive engagement with merchants and consumers.
Despite the Covid-19 pandemic, Groupon continued to cut costs, continued to gain operational leverage, and the sustainability of the business model became apparent. The positive results are a testament to Groupon’s strong position in the market, which prompts it to continue this upward trend in order to ultimately play a more essential role in the local market.
As a result of this strategy, Groupon has not only generated free cash flow since the end of March, but also built a cash position on September 30 that is higher than the cash position in the same period last year. This strategy is further aimed at increasing the purchase frequency of customers and unlocking the market flywheel, which the company believes will enable them to achieve sustainable revenue growth.
Delivering on the core value propositions for merchants and customers are also central to the growth strategy. To achieve these goals, the company has set two strategic priorities. The main priority is to expand inventory, which is much needed for future invoice growth. A second priority is to modernize the market approach and improve the experiences of merchants and customers.
In 2020, the company expects to save $140 million in costs through temporary leave and restructuring measures.
Why Groupon is running a test
Groupon ran a 6-month test to increase inventory in the test markets by 25% to 50% as soon as possible, to see a low single digit percentage improvement in units and an improvement in bill performance towards the end of the test.
Three months after the test, the following became clear:
– 50% increase in inventory in test markets versus control markets
– 90% of the stock listings of our new test market traders have no restrictions
Third Quarter 2020 Summary
Revenue was $304.0 million in the third quarter 2020, down 39% (40% FX-neutral) compared with the third quarter 2019.
Gross profit was $160.0 million in the third quarter 2020, down 42% (43% FX-neutral) compared with the third quarter 2019.
SG&A was $124.3 million in the third quarter 2020 compared with $198.4 million in the third quarter 2019, primarily driven by lower payroll-related expenses due to furloughs and restructuring actions.
Marketing expense declined by 58% to $31.4 million in the third quarter 2020 due to accelerated year-over-year traffic declines, significantly shortened payback thresholds, and lower investment in offline marketing and brand in light of COVID-19.
Restructuring charges were $20.6 million in the third quarter 2020 and were related to our multi-phase restructuring plan announced in April 2020.
Other expense, net was $0.9 million in the third quarter 2020, compared with $17.3 million in the third quarter 2019, which was primarily driven by a change in foreign currency gains and losses of $20.5 million, partially offset by higher interest expense.
Net loss from continuing operations was $16.6 million in the third quarter 2020 compared with a net loss of $14.7 million in the third quarter 2019, driven primarily by the decrease in gross profit and the impact of restructuring charges, partially offset by lower SG&A and marketing expenses, and changes in foreign currency gains and losses.
Net loss attributable to common stockholders was $16.3 million, or $0.57 per diluted share, in the third quarter 2020, compared with a net loss attributable to common stockholders of $16.7 million, or $0.59 per diluted share, in the third quarter 2019. Non GAAP net income attributable to common stockholders plus assumed conversions was $4.5 million, or $0.15 per diluted share, in the third quarter 2020, compared with non-GAAP net income attributable to common stockholders plus assumed conversions of $7.8 million, or $0.27 per diluted share, in the third quarter 2019.
Adjusted EBITDA, a non-GAAP financial measure, was $30.8 million in the third quarter 2020, compared with Adjusted EBITDA of $50.0 million in the third quarter 2019.
Global units sold were down 40% to 21 million in the third quarter 2020 largely driven by the impact of COVID-19 on demand. In the third quarter 2020:
– North America units were down 50% in Local and down 13% in Goods.
– International units were down 49% in Local and down 20% in Goods.
Operating cash flow was $56.9 million for the trailing twelve month period, and free cash flow, a non-GAAP financial measure, was $4.8 million for the trailing twelve month period.
Cash and cash equivalents as of September 30, 2020 were $779.0 million. As of September 30, 2020, Groupon had $200.0 million of outstanding borrowings under our revolving credit facility.
North America gross profit in the third quarter 2020 decreased 43% to $109.7 million, primarily driven by the impacts of COVID-19 on volume. Local gross profit in the third quarter 2020 decreased 44% to $87.5 million. Goods gross profit decreased 30% to $18.3 million. Travel gross profit decreased 64% to $3.9 million.
North America active customers were 20.2 million as of September 30, 2020.
International gross profit in the third quarter 2020 decreased 41% to $50.3 million (45% FX-neutral), primarily driven by the impacts of COVID-19 on volume. Local gross profit in the third quarter 2020 decreased 45% to $33.7 million (48% FX-neutral). Goods gross profit decreased 20% to $13.9 million (25% FX-neutral). Travel gross profit decreased 63% to $2.7 million (65% FX-neutral). International active customers were 13.9 million as of September 30, 2020.
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