The shares of online retailer Groupon (NASDAQ: GRPN), which faces cut-throat competition from e-commerce companies such as Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY), has lost more than 75% of its value in the past one year and touched a low of $2.15 in February 2016. However, the price bounced back smartly to hit $5.33 a few days earlier. Traders wonder whether this is an outcome of a probable turnaround in the operations.
For the fourth quarter of fiscal 2015, the company recorded revenue of $917.2 million and adjusted earnings of $0.04 per share. Both revenue and earnings went past analysts’ estimates. The company ended the year with no debt and $853.4 million in cash. Considering the large quantum of share buy-backs made by Groupon last year, the shares seem to trade dust cheap.
The North American billings increased by 11% in the fourth quarter of fiscal 2015. Groupon also registered a modest increase in customers to 48.9 million. Most of the additions are from the USA. According to its CEO Rich Williams, the company is shifting from low margin products. Thus, the company is expected to realize better margins in fiscal 2016. The daily deals company anticipates revenue from $2.75 to $3.05 billion for fiscal 2016. Considering the above, it looks as if Groupon has made a turnaround. However, a careful look at the balance sheet will reveal some other important facts about the company.
The fiscal 2015 revenue has declined to $3.12 billion, from $3.19 billion in fiscal 2014. More importantly, the cost of revenue has increased by 0.5% to $1.734 billion in fiscal 2015. It shows the amount of difficulty it faces to maintain the revenue. The operating loss widened to $80 million in fiscal 2015, from $15 million in the corresponding period last year. The operating margin also decreased from -0.5% in fiscal 2014 to -2.6% in fiscal 2015. For fiscal 2015, the net loss from continuing operations widened to $89 million, from $64 million in the similar period last year.
The company recorded a net income of $123 million from discontinued operations. Ultimately, this enabled Groupon to record a net income of $21 million for fiscal 2015. Thus, considering this information, it is clear that Groupon has to go a long way before making a firm case of a turnaround.
Technically, as shown in the image below, the stock has reversed after touching a major resistance at 5.33. Minor support exists at 4.30, while major support exists at 3.10 levels.
There exists a technical gap between 3.64 and 2.24. The gap will be ultimately covered by the price action. Thus, ideally, a binary options trader should purchase a put option contract with March-end expiry. The suggested strike price for the put option contract is between $3.50 and $4.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
