Groupon Gets A Discount On Living Social Deal

Groupon Inc GRPN shares plunged more than 19 percent as investors were disappointed with falling gross billings and the acquisition of loss-making Living Social.

For the third quarter, the daily deals site reported lower-than-expected loss, with revenues and adjusted EBITDA topping Street views. The company added 1.2 million customers in North America, bringing its total in the past year to over 4 million new customers in North America.

Groupon has identified the 15 countries it's going to continue to operate in (compared to 26 countries it is in as of third quarter) and is planning to exit or sell those operations through 2017.

“This should be a net positive over time but also continue to put pressure on billings and revenue growth,” Loop Capital analyst Blake Harper wrote in a note.

However, gross billings fell 2 percent to $1.43 billion in the third quarter 2016. But, North America gross billings increased 6 percent.

Groupon is investing heavily on marketing to add customers, which could weigh on margins. Harper expects EBITDA margins in the mid-single digit range in 2017.

Groupon also announced the purchase of rival Living Social for an "immaterial" amount, essentially getting one million net new customers. Living Social is expected to contribute about $15 million in revenue per quarter, while bringing an EBITDA loss of $2-$3 million.

Groupon also raised its 2016 revenue guidance range to between $3.075 billion and $3.150 billion, and narrowed its expected 2016 adjusted EBITDA range to between $150 million and $165 million.

“We are encouraged by the progress it has made to acquire new customers but we expect headwinds to growth as it exits more countries and absorbs losses from Living Social,” Harper continued.

Harper, who has a Hold rating on the stock, lowered his price target to $5 from $6.

At time of writing, shares of Groupon fell 19 percent to $4.25.

Image credit: Mike Mozart, Flickr