Groupon shares jump on upbeat Q1 results

Tue May 15, 2012 10:20am EDT

Groupon CEO Andrew Mason poses with his newly married wife, pop musician Jenny Gillespie, outside the Nasdaq Market following his company's IPO in New York in this file photo taken November 4, 2011. REUTERS/Brendan McDermid/Files

Groupon CEO Andrew Mason poses with his newly married wife, pop musician Jenny Gillespie, outside the Nasdaq Market following his company's IPO in New York in this file photo taken November 4, 2011.

Credit: Reuters/Brendan McDermid/Files

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(Reuters) - Groupon Inc (GRPN.O) shares jumped as much as 27 percent in early trading after the daily deals company posted its first-ever quarterly profit, allaying fears of slowing growth.

The company said on Monday that North America revenue rose 33 percent for the first quarter — its strongest growth in a year. Investors have been concerned that growth was slowing in the relatively more mature North American business.

"While billings, revenue, margins, and guidance all met or exceeded, signs of accelerated North American revenue shows that the company's technology efforts around personalization and, to a lesser extent, mobile and rewards, are paying off," Evercore Partners analyst Ken Sena wrote in a note.

Sena raised his price target on the stock to $17 from $15 and kept a "buy" rating.

New technology, mainly SmartDeals, is driving the strong domestic performance and this bodes well for international markets, which have yet to receive the technology upgrade, Benchmark analyst Clayton Moran said.

Groupon's SmartDeals initiative aims to make its daily deals more relevant to subscribers by matching them to specific deals.

Citigroup analyst Mark Mahaney raised his rating on Groupon stock to "buy" from "neutral," saying the company's success in terms of revenue and free cash flow was "extremely impressive."

The company, whose valuation has halved this year on concern of waning demand for its daily deals and persistent accounting problems, said it now had 36.9 million active customers and served more than 100,000 unique merchants in the first quarter — crossing that threshold for the first time.

"Groupon appears to be gaining market share in general," analyst Moran said.

Groupon's take rate — which measures how much of the money it keeps after sharing cash with merchants running its deals — rose to 41.3 percent from 40 percent in the previous quarter.

Also, Groupon's move to appoint Robert Bass, a Deloitte LLP vice chairman, and Daniel Henry, chief financial officer of the American Express Co (AXP.N), addresses its accounting issues, Citigroup analyst Mark Mahaney said.

The world's largest daily deals company came under renewed fire in March after revising its fourth-quarter financial results and admitting to a "material weakness" in its financial statements, months after its high-profile IPO.

However, Citigroup said Groupon's overall marketing spend per net new active customer rose to $38 in the first quarter from $32 in the fourth quarter, indicating a significant slowdown in net customer adds relative to marketing spend.

The brokerage lowered its price target to $22 from $24.

Benchmark's Moran also cut his price target on the stock to $20 from $28.

The Chicago-based company's shares were trading up $2.06 to 13.80 on Tuesday on the Nasdaq. The stock has been a poor investment for buyers since Groupon went public in November 2011, when the IPO was priced at $20 a share.

(Reporting by Supantha Mukherjee in Bangalore; Editing by Joyjeet Das)

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