Groupon swings to Q3 profit, raises FY17 profit view

Last week, the online daily deal service provider Groupon, Inc. (NASDAQ: GRPN) reported a swing to profit in the fiscal 2017 third-quarter. The company’s earnings also met analysts’ estimates. However, the revenue missed the Wall Street estimates.

Still, on the basis of a raised FY17 gross profit guidance and increase in active customers, we anticipate the stock to remain bullish in the short-term. Groupon closed Monday’s trading session at $5.47.

The Chicago-based reported a Q3 net profit of $59,000, or break even per share, on revenues of $634.466 million.

In the year-ago period, Groupon reported a net loss of $37.977 million, or $0.07 per share, on revenues of $686.555 million. Excluding gain on sale of investments and intangible assets, restructuring expenses, and stock-based compensation, the non-GAAP net income was $6.751 million, or $0.01 per share, in Q3 2017. The Street Consensus estimate called for earnings of $0.01 per share on revenues of $643.6 million.

Groupon

Despite tough competition from the online retail giants, the company was able to return to profit, as it focused on domestic market. Region-wise, North America revenues fell 14.3% y-o-y to $414.214 million. International revenues were $220.252 million, up 8.4% on a year-over- year basis. Gross billings from North America increased 0.9% to $928.849 million. Under that division, local gross billings increased 14.2% to $606.184 million. International billings declined 2.6% to $412.648 million. Under that division, local gross billings grew 10.3% to $202.991 million.

The company added nearly 600,000 new customers in North America during the third-quarter. Active customers in North America were 32.5 million. Globally, Groupon added 200,000 active customers to end the September quarter with a client base of 16.6 million. At the end of June 2017, Groupon had approximately 49.1 million active global customers.

The company underlined that its new offering Groupon+ has been well accepted. Groupon’s integration with Mastercard is also complete and that is expected to play a vital part in boosting future growth. The company announced that it had entered into a partnership with Grubhub to provide food delivery services from nearly 55,000 restaurant partners. The service will be provided through the Groupon platform. Reflecting the successful implementation of restructuring activities, the company’s EBITDA increased 43% y-o-y to $466 million. The free cash flow was $10 million in the third-quarter.

Groupon raised its FY17 gross profit guidance to a range of $1.305 billion to $1.355 billion. The company also lifted its adjusted EBITDA outlook to a range of between $225 million and $245 million. Thus, a swing to profit, growth in profit margin, and raised gross profit outlook is expected to turn Groupon bullish.

The historic price chart indicates that the stock is moving along an ascending trend line and above the 50-day moving average. Further, the positive reading of the MACD histogram indicates bullishness in the stock. Thus, we can expect the rally to continue.

In order to gain from the anticipated rally, we prefer to invest in a call option valid for about a week. We may proceed to invest in the option only if the stock trades near $5.40 in the NASDAQ.