Groupon (GRPN) has been in the middle of a turnaround over the last few years. The last year was extremely critical and challenging for Groupon. The company is fast becoming a daily utility platform for users. It is also delivering solid cash flow and EBITDA growth on an adjusted basis.
However, these efforts are not translating into shareholder returns. The stock has declined by double digits in the last 12 months. Groupon’s management believes that its competitive position, economies of scale, traffic volume, and assets are undervalued.
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In a recent letter addressing shareholders, Groupon’s management stated, “We believe there is significant opportunity for stockholders in bringing our value more in line with our assets and longer-term potential. Our transformation will take time, but 2018 showed more signs of progress.”
Record adjusted EBITDA and cash flow in three years
In 2018, Groupon reported a net income of $2 million and operating cash flow of $191 million. Its adjusted EBITDA of $270 million and free cash flow of $163 million were the highest in the last three years. Last year, Groupon’s card-linked offer redemption increased by triple digits while booking transactions also grew at a robust pace.
Challenging operating environment in the second half impacted Groupon stock
Groupon stated that the operating environment turned challenging in the second half of 2018, limiting the impact of the company’s turnaround efforts. There were changes in Google (GOOG) (GOOGL) search that reduced traffic and user engagement. While these headwinds will likely not worsen in 2019, they are likely to continue for the short term.
While traffic headwinds impacted Groupon by $100 million in 2018, the company’s gross profit stood at $1.3 billion. It sold over 170 million coupons and ended the year with $840 million in cash. Groupon is banking on its strong local reach, mobile traffic, and increasing merchant relationships to drive revenue this year.
Adjusted EBITDA is estimated to be $270 million in 2019 and this figure might rise to $300 million in 2020. There might be a significant expansion in the bottom line if Groupon manages to achieve strategic initiatives and cost-saving targets.