Groupon Inc. posted its first quarterly profit as the world’s largest daily deal company reined in marketing spending while signing up more customers and merchants, sending its stock 12.5 per cent higher.
The daily deals company started by music graduate Andrew Mason said it now had 36.9 million active customers, and surpassed 100,000 merchants served in the first quarter.
The after-hours rally to about $13.21 (U.S.) a share followed a gain of more than 18 per cent in regular trading on the Nasdaq Stock Market, its largest single-day gain since it went public in November. Analysts said short sellers scrambled to cover their positions, anticipating better-than-expected results after the bell.
“Revenue came in much higher than expected and margins were higher,” said Sameet Sinha, an analyst at B. Riley & Co.
“The domestic side of Groupon’s business did well,” he added. “They may be doing a better job of marketing or their new businesses may be gaining traction.”
Groupon’s operating profit margin was 7 per cent in the first quarter, while Wall Street was looking for a 6.5 per cent margin, Mr. Sinha noted.
Groupon has lost more than half its market value this year on concern about waning demand for its daily deals and the company’s accounting troubles.
The Chicago-based company revised fourth-quarter results at the end of March, admitting to “material weakness” in its financial statements – a disclosure that triggered the latest drop in its share price. Despite such worries, Wall Street was expecting Groupon to report its first-ever quarterly profit on Monday.
Groupon reported first-quarter pro-forma net income, which excludes option expenses, of 2 cents per share, against a net loss of 41 cents a share, a year earlier. Revenue was $559.3-million, compared with $295.5-million in the first quarter 2011.
Groupon was expected to make 1 cent per share in pro-forma first-quarter earnings, according to Thomson Reuters I/B/E/S. Net revenue was forecast to be $531-million.
Groupon chief financial officer Jason Child said lower marketing expense helped drive profitability. Marketing costs dropped to $117-million in the first quarter from $230-million a year earlier.
Groupon got more efficient at marketing, adding the same number of customers in the first quarter as it did in the previous three months while spending less, Mr. Child explained.
Groupon’s take rate – which measures how much of the money it keeps after sharing cash with merchants running its deals – has also been a focus for analysts and investors.
The take rate peaked at 44 per cent in the first quarter of 2011 and some on Wall Street expect it to decline as Groupon faces competition from Amazon.com Inc., Google Inc., LivingSocial and some merchants ask for bigger cuts.
Mr. Child said the take rate in the first quarter rose to 41.3 per cent from 40 per cent in the previous quarter.
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