Updated from 8:35 a.m. to include additional thoughts from Deutsche Bank analyst and updated share price.
The company's rollout of its "pull" program, in which customers go to the Groupon Web site on their own as opposed to when notified, continues to see traction though at a much lower percentage than "push" customers. Groupon noted that approximately 10% of total traffic in North America was searched, and those customers spent "significantly more than those that did not."
Chicago-based Groupon posted an adjusted gain of 1 cent a share on $751.6 million in revenue, falling short of Wall Street's second-quarter estimates. Analysts surveyed by Thomson Reuters expected the daily deals site to earn an adjusted 1 cent a share on $761.8 million in revenue.
During the quarter, Groupon bought back 17.2 million shares of Class A stock, spending $106 million. It has $118 million left on its buyback program, which was initiated in August 2013.
"We had another record quarter in terms of demand, with worldwide billings increasing 29% and reaching their highest level ever," said CEO Eric Lefkofsky in a press release. "Our marketplace continues to gain traction and add to our growth; we reached another all-time high in mobile, and with the launch of Gnome, we believe we're making great strides in connecting local commerce."
For the third quarter, Groupon said it expects on an adjusted basis earnings per share of between breakeven and 2 cents, with revenue of between $720 million and $770 million. Analysts are expecting earnings of 3 cents a share on $759.7 million in sales.
Shares were plunging in early Wednesday trading, falling 16.1% to $5.93.Following the quarter, analysts were largely negative on the quarter and Groupon's outlook. Here's what a few of them had to say:
UBS analyst Eric Sheridan (Neutral, $6.50 PT)
"We were positive on: a) continued traction within mobile (greater than half of all transactions, 92mm app downloads) & "Pull" (June 2014, 10% of NA traffic used search); b) a second consecutive quarter of EMEA customer growth (following six quarters of decline); c) stabilizing Groupon redemption trends, with the average number of unused Groupon's per customer down more than 25% YoY; and d) 20% QoQ growth in active deals (now at 240k from 200k end Q1 2014). We were less positive on: a) continued deceleration in NA unit growth, growing 8% YoY vs. 14% in Q1 2014; b) elevated marketing levels (order discounts, customer acquisition) and plans to spend more heavily on performance advertising (e.g., search) in 2H 2014; c) higher than expected investments required for TicketMonster; and d) continued lack of gross profit dollars within the 1P business (100% of gross profit dollars still generated by 3P)."
Jefferies analyst Brian Pitz (Hold, $7 PT)
"Groupon delivered a largely in-line Q but guidance came in below expectations. Mgmt has a sound strategy to get the biz back on its prior growth trajectory but the pace of execution is still somewhat underwhelming. In addition, LT margin profile remains uncertain as Goods biz ramps up and Co moves deeper into eCommerce. We reiterate our Hold rating but lower PT to $7."
Sterne Agee analyst Arvind Bhatia (Buy, $12 PT)
"While the optics of near-term results may seem mediocre to slightly disappointing, we think the progress we were hoping for in 2Q was mostly there. North America Local billings improved slightly (though offset by lower take-rate) and accelerated towards the end of the quarter/beginning of 3Q, Goods gross margins improved more than anticipated and RoW (ex acquisitions) came close to break-even."
Deutsche Bank analyst Ross Sandler (Buy, $7 PT)
"GRPN's performance hit its fourth consecutive quarter of disappointing and sluggish growth, but despite some EMEA headwinds, billings, GP and EBITDA were +1%, -3% and +11% vs. our estimates, more or less in-line. Objectively, we see several silver-linings, including: 1) EV is sub-$4B, and valuation has been halved in the past two prints while 2015 EBITDA has been reduced far less, 2) local-mobile-transactional companies are proving to be strong strategic footprints, highlighted by the eight parties interested in OpenTable, and GRPN is in over 50 countries with significant scale, 3) Marketplaces are fragile and take time to turn, and comps get easier starting in 3Q (Gmail and purchase-to-redeem, and 4) Groupon's business is in much better shape than last time shares were below $6 in 2013. We've reduced our EBITDA to well below guidance again, shares remain Buy rated."
-- Written by Chris Ciaccia in New York
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