UPDATE: Bank of America Downgrades Groupon to Underperform; Gross Profit Declines

Bank of America downgraded Groupon

from Neutral to Underperform and lowered the price target from $5.35 to $4.20. Bank of America commented, "Rev./CSOI of $638mn/$13.7mn vs. Street at $647mn/$46mn with non-GAAP EPS of ($0.08), below the Street at $0.03. The biggest negative in the quarter was the GM miss (55.7% vs. our 66.0% est.), which was driven by the rapid mix shift to lower margin Goods, and a q/q decline in 3rd Party and direct margins. … Despite double-digit customer growth, with gross profit declining y/y Groupon has arguably the weakest fundamentals in our eCommerce coverage sector and a close to in-line 2014E P/E, which warrants an Underperform vs. the group. We are lowering our PO to $4.20 (from $5.35) based on an unchanged 18x multiple on a lower 2014 EPS of $0.23. Our 18x PO multiple is a discount to the group at 22x, reflecting a business model still in transition, GM pressure and EPS uncertainty." Groupon closed at $5.98 on Wednesday.