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UPDATE: RBC Downgrades Groupon, Says Risk Outweighs Reward

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In a report published Friday, RBC Capital Markets analyst Mark Mahaney downgraded Groupon (NASDAQ: GRPN) from Sector Perform to Underperform and lowered the price target from $11.00 to $7.00 following mixed fourth quarter results.

On Thursday, Groupon reported fourth quarter and fiscal year 2013 results. Revenue for the fourth quarter was up 20% year-over-year at $768 million. This was above the Street's estimate of $718 million and RBC's estimate of $724 million. EBITDA was disappointing at $72 million, due to greater than expected Gross Margin pressure. Management first quarter revenue guidance came in 10% ahead of the Street, but EBITDA continues to lag. Groupon noted the negative impact from acquisitions and the increased Marketing campaign.

Despite Groupon's revenue growth, mobile traction, and repurchase of 3.7 million shares, Mahaney reported some concerns. The analyst noted that profitability outlook is lower than RBC's initial estimates. In addition, Mahaney wrote that billings growth rate decelerated and active customer trends deteriorated.

RBC Capital Markets commented on the downgrade noting "1) Our dramatically reduced estimates and our valuation framework point to valuation downside; 2) North America and International Billings trends are showing greater weakness than expected; 3) Active Customer and Billings Per Customer trends are softening; 4) NA Local Billings (what we view as the company's key segment) showed only 2% Y/Y growth in Q4; and 5) We view GRPN's goal of becoming the “starting point for (all) Mobile Commerce” to be excessively ambitious and undermining of the company's potential to win the Local Commerce/Services market. " Shares of Groupon closed at $10.28 on Thursday and are currently down 18.57% at $8.37.

Posted-In: RBC Capital Markets. Mark MahaneyAnalyst Color Downgrades Analyst Ratings

 

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