Groupon swings to USD28.4 million profit on US revenues and lower marketing costs

Groupon

Strong revenues in home market and lower marketing costs

Groupon made a profit of USD28.4 million in the second quarter this year, boosted by strong revenues in its home market and lower marketing costs, beating analyst expectations, reports StrategyEye. Revenue increased 45% year on year to USD568.3 million, helping push the company into profit and improve on the loss of USD107.4 million this time last year. Though this is Groupon’s first profit as a public company, revenue increase was considerably slower compared to the previous quarter, when the firm saw 89% growth year on year – this lead to analysts questioning its continuing core profitability.

It seems like they don’t have enough control over various aspects of their business,” said B. Riley & Co. analyst Sameet Sinha.”Will they be able to fix the situation by the end of this year? If not, we could see a very significant slowdown in growth in 2013.”

Revenues grew 66% year on year in the US, Groupon said, while it shaved marketing costs by 58%. Mobile activity also remains high, with a third of US deals conducted through mobile devices, up 35% compared to this time last year. User and merchant activity is also at a high, with the company now boasting 38 million active customers, up 65% year on year, and around 100,000 merchants for the quarter.

These gains, however, were marred by sluggish European growth, which Groupon CEO Andrew Mason attributed to continued economic trouble there and a weakened euro. As a result the firm’s high-end deals for hotels and beauty treatments were particularly affected, he said.

While deals such as laser hair removal and luxury hotel stays in Monaco give Groupon an element of discovery that is key to our brand, we’ve also found that these more discretionary offers are more susceptible to negative demand elasticity over the past few quarters as macroeconomic conditions have deteriorated,” he told analysts.

Groupon is forecasting revenue of USD580million to USD620million for Q3 this year, lower than expectations and adding further to analyst doubt. The firm’s core deals business is “slowing more than anticipated”, according to Benchmark Company analyst Clayton Moran. The firm’s expansion into new products, such as its Groupon Goods merchandise offering, highlights that deals may not “have the potential that people previously thought.”

Groupon by the numbers:
¤ Quarterly profit of USD28.4m, up from a loss of USD107.4million
¤ Revenues up slower than expected, up 45% to USD568.3million
¤ Active users up 65% year on year to 35million
¤ US revenues up 66% year on year, with a third of deals taking place via mobile
¤ Q3 revenue forecast between USD580m to USD620million