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Groupon posted solid earnings during the fourth quarter of 2014 as its top-line growth of 20% came in ahead of market expectations. The results were lauded by market participants and led to over 10% increase in its stock price. The company expects ts top-line to rise 15% during 2015 even though revenue growth is guided to just 4% to 11% during the first quarter of 2015. In addition, its long-term outlook is even more optimistic with revenue and adjusted EBITDA growth targets set at over 20% and 25% by 2017. In this article, we analyze the key factors that are expected to fuel the company’s earnings during the year, along with our take on whether its targets are achievable.

We think Groupon’s growth will be led by mobile-related transactions in the future, fueled by a rising share of mobile commerce in the overall business and this will also positively impact average spend per customer. At the same time, ongoing traction with its Pull strategy and stabilization in the email-related business will further propel demand going forward. Groupon posted robust growth across geographies and categories in the recent quarter, and we expect this trend to continue in the future. Over the long run, we think Groupon’s strategy to introduce Pages and G.Nome, and to lower take rates for higher-quality merchants, will lead to expansion in both the quantity and quality of deals on its marketplace, and this will help bolster customer adoption even further. However, we think revenue growth (in dollar terms) could slightly underperform against the 15% target in 2015, mainly due to currency headwinds and lapping of certain acquisitions. Moreover, in the event the Ticket Monster business gets sold off, then it will have an impact on year-over-year growth rates.

Groupon Targets Over 15% Revenue Rise In 2015; We Believe This Will Be Driven By Mobile and the Pull And Merchant Expansion Strategies

Groupon targets revenue growth at more than 15% in 2015 and, over the long-run, it aims to achieve 20% plus increase in sales on top of a similar rise in annual gross billings by 2017. The key drivers that are expected to propel the company’s growth in the future include:

Rising Mobile Traction. Groupon is aggressively investing on mobile platform development as mobile commerce is rapidly gaining prominence in the overall online commerce market, fueled by rising Internet usage on mobile devices. The mobile platform currently accounts for over half of its business globally and in certain markets this figure is higher at around 65%. Groupon’s cumulative app downloads crossed 110 million recently and we think this positions it well for growth. This because mobile customers tend to buy more heavily as compared to web users, which pushes up average spend per active customer. This is because the annual gross billings of Groupon’s mobile customers are over $70 higher than customers who transact only on the web (according to Groupon’s filings). We expect Groupon’s mobile customers to rise at a rapid pace in the coming years, considering its mobile penetration is still low and can improve further.

Move From Push To Pull Model: WhileGroupon started with a push-only model, wherein it sent hundreds of millions of emails everyday to users, it has been making efforts to broaden into non-email channels over the last few years. This strategy has met with some traction, since the share of emails in North America local business has come down from 48% in Q4 2011 to 22% in Q3 2014. At the same time, the share of non-email business has risen from 52% to 78%. The ‘Pull’ strategy has met with some success, since active search for deals comprised for 24% of North American transactions at the end of Q3 2014, as compared to 9% at the end of Q3 2013. We expect the Pull marketplace to fuel the company’s business going forward, considering that the email strategy by itself is unsustainable in the long-run. In an encouraging sign, while the email business suffered more than 20% CAGR drop over the last the three years, its rate of decline subsided over the past year. We think this could help propel sales increase even further in the coming future.

Expansion In Merchants And Inventory. We expect Groupon’s strategy to roll-out new features, including Pages and G.Nome, to help in merchant expansion in the coming years. Over 800,000 pages were released publicly in 2014 that carry valuable merchant-related information (such as contact information, maps and reviews) and allow users to follow merchants, as well as to request deals and make appointments. In addition, seven million such pages have been built, and will be released in the coming quarters for search engines to index. Alongside, the G.Nome operating system, which provides merchants with useful item-level sales and connects them to Groupon’s platform in real-time, is being rolled out across merchants. Around 10,000 merchants have signed up for this service and we expect more merchants to adopt this system. The company’s addressable market for merchants is immense, since presently less than 5% of the target market of merchants is tied with Groupon. We believe as these features gain popularity, a larger proportion of merchants would put deals on Groupon, which will make the platform even more attractive to consumers.