In the wake of yet another disappointing quarter, Groupon’s stock has crashed to a new all-time low below $3 a share.The stock is now down more than 85% from its $20 IPO price a year ago.
The latest stumble has caused some Wall Street analysts to finally cut their “Buy” ratings.
One sceptical Groupon analyst, meanwhile, has taken this opportunity to reiterate his CONVICTION SELL rating and slash his price target from $3 to $2.
Ken Sena of Evercore, who has been on the right side of Groupon since this summer, cites a litany of discouraging data.
Sena also points out that the bullish “value” story about Groupon down here–that the company has $1.2 billion in cash–is based on a false premise. The company does have that cash balance, but it also has ~$600 million in payables and accrued expenses. So the net cash balance is far lower than it might seem.
The good news is that, at least for now, Groupon is still profitable. So there should be a bottom here somewhere.
Here are Sena’s bullets:
Flat q/q revenue growth was 5% below expectation at $569 mm. Daily Deals revenue of $424 (75% of business) was down -16% q/q, 17% below our $506 mm estimate. EBIT was $25 mm, $5 mm higher than our $20 million estimate (3.3% of rev), but 40% below the Street at $35 mm. However, EPS of $0.03 was in-line with EVR / Street estimates of $0.02 / $0.04 on lower than expected taxes.
COGS [Cost Of Goods Sold] soar on higher first-party Goods transactions. Direct revenue (where first party Goods sales are booked) increased 122% q/q to $145.0 million in 3Q12, vs. our $90 mm est., driving COGS as a percentage of revenue from 23.8% in 2Q12 to 32.0% vs. our 26.6% estimate.
International story worsens. International revenues were up 3.1% y/y (+13% y/y x-FX) to $277 mm, or down 10% q/q, which missed our $314 mm estimate by 12%. This miss was despite an $18.5 million one-time true-up of unredeemed voucher revenues related to a tax ruling in Germany. Moreover, while Groupon cited improving EMEA signs in September, the comment unfortunately suggests that their 3Q12 guidance was potentially knowingly aggressive when provided in August.
FCF down 46% q/q to $26.1 mm driven by 60% reduction in adjusted net income to $24.1 mm.
Reducing Estimates. We are reducing our 2013 EBITDA estimate for Groupon from $260 million to $176 million on the expectation for higher COGS from 1P Goods and slower growth from higher margin Daily Deals. Given the stronger growth from Goods, we now see Goods contributing $1.4 billion in revenue (~48% of billings) in 2013, vs. our previous estimate of $678 million. Meanwhile, we now expect $3.9 billion in Daily Deal Gross Billings versus $5.4 bn previously (-17% y/y vs. +3.7% y/y).
Reducing Target. Groupon currently trades at 52.3x our 2013 EBITDA estimate of $19 mm (inclusive of $157 mm in SBE), or 6x our $176 mm estimate x-SBE. Although the company has $1.2 billion in cash on its balance sheet, ~$600 mm is in accrued payables and expenses, suggesting less cash valuation support than it would seem. Our newly lowered target of $2.00 (from $3.00) implies that Groupon should trade at 6x our EBITDA estimate (inclusive of SBE), or 1x EBITDA x-SBE. Therefore, we see further risk and maintain our Conviction Underweight rating.
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