Troubling Quarterly Trends For Groupon

In Groupon's (GRPN) Q4 earnings announcement, they emphasize year over year changes, which are very impressive. In this article I will analyze some trends at the quarterly level, which I think is more illuminating.

Let's start with revenues. On a year over year basis, growth is an incredible 195%. On a quarter over quarter basis, however, the growth is only 18%. Worse, it is decelerating. Groupon's guidance of $510-$550 million implies only 1%-9% revenue growth in Q1. The revenue per active subscriber, which Groupon did not state but is easy enough to calculate, fell by 2% from Q3 to Q4. The falling growth is also consistent with Groupon's strategy of reducing marketing expenses. If we extrapolate the trends of decelerating growth we find that Groupon's revenues may peak as early as Q3 or Q4 this year (this is illustrated in graph below - click to enlarge).

Now let's discuss costs.