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$GRPN,...Groupon Is A Buy Going Into Earnings
Aug. 1, 2014


Summary

•Groupon is set to release earnings in the first week of August.

•The initiatives to boost its customer base will prove to be beneficial.

•Recent acquisition by Groupon will drive growth in the long run.

•The beaten down share price has made Groupon a great acquisition target.

•Groupon looks like a good buy.

Having lost close to 45% of its market capitalization this year, Groupon (NASDAQ:GRPN) will be hoping for a turnaround when it reports its second-quarter results next week. But, should Groupon investors harbor any hopes of a turnaround?


The Expectations

Analysts expect average earnings per share of $0.01, as compared to $0.02 per share in the same quarter last year. The average revenue estimate for the quarter is at $761.91 million, more than the previous year quarter's $608.75 million. This will be a massive jump of 25.20% year-over-year. So, it is clear that Groupon will be delivering solid revenue growth, but the bottom line performance is expected to be weak. However, since the company is making solid investments in the business, it can get better.

Growth-oriented Investments

Groupon recently acquired Ticket Monster, a leading Korean e-commerce company, for $260 million in cash and stock. This acquisition will help Groupon expand overseas and strengthen its revenue growth. Ticket Monster comes with a user base of 4 million active customers and annual gross billings of $800 million. Moreover, Groupon will acquire a good grip over the fast growing e-commerce market of Korea.

Acquisition Target

The drop in Groupon's share price has also made it an ideal acquisition target. As I stated in my previous article:
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"Following the acquisition of OpenTable (NASDAQ:OPEN) by Priceline (NASDAQ:PCLN), investors have started to hope that an acquisition is in cards for the likes of Yelp and Groupon. While I don't think any company will acquire Yelp, because of its overly-inflated valuation, I do believe Groupon is a realistic acquisition target for the likes of Google (NASDAQ:GOOG) (NASDAQ:GOOGL).

Groupon's shares have performed horribly in the past few months. The company has lost half its value and this might just be the ideal time for Google to acquire Groupon on a cut-price valuation. With a P/S ratio of just over 1.6, Groupon is fairly cheap, and it will not have much problem integrating it into its Google Offers business, which is Groupon's direct competitor. This deal would be a win-win situation for both the companies as it will give rise to cost synergies, which the companies would otherwise spend on outdoing each other."

Strong Fundamentals

Groupon stands strong on its balance sheet with $1.04 billion in cash and no debt. Additionally, Groupon's cash flow generation also looks impressive, as it generated $189 million in operating cash flow and $250 million in levered cash flow last year. Moreover, as mentioned above, Groupon looks like an acquisition target, which is why investors should definitely consider using the stock's drop to their advantage.