Has Groupon Inc (NASDAQ:GRPN) finally turned the corner? The stock has witnessed some serious volatility in the past as the company reported periods of both declining and growing revenue. The company’s latest quarterly earnings announcement was an enormous success as it was able to record substantial improvements in its domestic revenue, driven by growth in mobile users.
Earnings highlights
The company reported domestic gross billings improvement of 23.1% in the first quarter. Revenue in domestic gross billings increased from $553 million to $681 million from last year.
The decline in gross billings in the international segment was driven by the decline in average spending per active customer from $156 to $129 year-over-year. The decline in average spending was 17.31%, which closely corresponds with the 18.4% decline in gross billings from international markets.
On the other hand, the company was able to increase its gross billings from its Groupon Inc (NASDAQ:GRPN) Goods division from $78 million to $165 million year-over-year in Q1 2013. The growth in gross billings from this relatively new business division is what grew the value of its billings in North America by 42.3% year-over-year.
The company reported earnings that remained unchanged from the previous fiscal year. Basic loss per share was $0.02 per share in the first quarter of 2012; the loss per share was $0.01 per share in the first quarter 2013. The company’s bottom line saw no significant improvement as it remains heavily focused on growing its business.
Analysts anticipate the company to grow earnings 38.5% for fiscal year 2013, with growth rates projected to be 66.70% in fiscal year 2014. The company’s growth in earnings can be accomplished with an incremental improvement in net profitability.
Other alternatives to Groupon
Online retail is a compelling space. Part of what makes Groupon Inc (NASDAQ:GRPN) attractive is that its business has the potential to scale in foreign markets. The company witnessed a decline in revenue and operating income from its international division. This is because Groupon hasn’t fully-developed a market for Groupon discounts. The internet isn’t full saturated in many foreign markets, and this has hindered the success of Groupon in foreign markets over the short-term.
Groupon Inc (NASDAQ:GRPN) is starting to attract competition from Amazon.com, Inc. (NASDAQ:AMZN). Amazon is extremely well-known for ripping off the ideas of other technology companies and going in full-force. Currently, Amazon is heavily focused on cloud and cloud related services.
Assuming Amazon is still gung-ho on the cloud, it may not invest significant capital into competing with Groupon. Currently, Amazon.com, Inc. (NASDAQ:AMZN)’s attempt at Groupon’s business is through Amazon Local. That being the case, I highly doubt Amazon Local will be as successful as Groupon because Groupon is highly differentiated for a web-based company. While Amazon’s brand identity is strong, it doesn’t mean it will garner enough market share to be seen as a significant threat to Groupon Inc (NASDAQ:GRPN). Remember, Amazon’s marketplace failed to take any significant market share away from eBay Inc (NASDAQ:EBAY), and the same might happen in the coupon space as well.
eBay is another entrant in the coupon space. Currently, eBay’s service is called eBay lifestyle deals. While I applaud eBay at its novel attempt at trying to take market share away from Groupon, I have to remain a skeptic as eBay’s success has been fairly limited. In fact, in eBay’s latest earnings release, the company didn’t even bother to report the eBay’s lifestyle deals as a separate segment. This means that eBay’s Lifestyle deals’ effect on total company performance is likely to be immaterial. eBay Inc (NASDAQ:EBAY)’s primary growth will be driven by PayPal along with the international marketplace. Assuming those two divisions continue to grow, eBay’s performance will continue to improve at a fairly steady pace.
Conclusion
Groupon Inc (NASDAQ:GRPN) is the best place to get coupons on local deals. The CFO of Groupon stated that in most of its international markets, it is number one or number two in market share. Its heavy investment into building the 48 markets it operates is why the company has been able to outperform the competition.
The company’s dominant market positioned, paired with its strong branding along with long-term experience in the business is why Groupon should remain competitive even in an market being crowded by Amazon and eBay.
The article This Company Is Getting Better and You Shouldn’t Ignore It originally appeared on Fool.com and is written by Alexander Cho.
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