Groupon’s First Earnings Call Missed the Mark, But It May Not Matter

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Today in its quarterly earnings call, Groupon reported that it did not meet fourth quarter expectations. The company posted a $43 million loss, or $0.08 cents per share.

Despite the loss, Groupon’s revenue in the fourth quarter 2011 grew 194% to $506.5 million, up from $172.2 million in the fourth quarter of 2010. In fact, the fourth quarter 2011 was the company’s first quarter of operating profitability since it opening international operations in the second quarter of 2010. This brings everyone back to the same question: Is the daily deals model a real, legitimate business, or is it just a trend? Only the numbers will tell.
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On the earnings call, CEO Andrew Mason mentioned the company’s expansion into Silicon Valley. In regards to the losses, Mason pointed out that Groupon is "still in the early days" of personalized commerce. It is an area that Groupon is rapidly expanding into. Earlier this week, it acquired Adku, a start-up focused on big data for ecommerce. Last month it acquired personalization service Mertado, which is focused on providing a better social shopping experience. With more personalized data comes two things: Greater responsibility surrounding privacy, and additional opportunities for Groupon to know its users.

On the earnings call, Groupon reported that the Grouponicus holiday promotion, which hit 40 North American markets, helped boost fourth quarter 2011 earnings. CFO Jason Childs said that because Grouponicus was such a success, Groupon is considering "occasional themed promotions throughout the year."

Groupon also mentioned why it had a 1600% effective tax rate. Apparently, this was a result of building its international headquarter in Switzerland and profits in overseas countries. It expects that to to eventually drop into the "low 30s." Keep in mind that the U.S. corporate tax rate is 35%.

The company says that it will be spending big on technology hires, referencing the new Silicon Valley facility but also mentioning an "initiative we’ve yet to announce." Groupon says it is not planning on acquisition-related expenses in the near future.

And what of high marketing costs, the area that concerned many? Marketing spent as a percentage of revenue was only 31% in the past quarter versus more than 100% a year before. Will it shrink even further? "Whether it will get down to the 5-10% you see at Amazons or Netflix…that’s going to take a little while," says Groupon’s CFO Jason Childs.

When Groupon went public last November, it raised $700 million in its IPO. That number is now up to $1.1 billion. One year ago, that number was a mere $119 million.

For the first quarter 2012, Groupon expects revenues between $510 and $550 million, which is 73%-86% more than first quarter 2011. Will Groupon make their goals? Either way, it’ll be interesting to watch.
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