Morgan Stanley Optimistic On Groupon Shares L-T Amid Rocky Transition

In a report published Friday, Morgan Stanley analyst Stephen Shin previewed

first quarter earnings, optimistic on shares long-term despite rocky progress. Shin wrote, “We believe Q1 numbers are largely derisked as expectations are low and we see an inline quarter relative to guidance and expectations.” Morgan Stanley models quarterly gross billings of $1.77 billion, a 26 percent year-over-year growth, and revenue of $725 million. The analyst emphasized that second quarter guidance will be the central point on the quarter. Shin modeled a higher contribution in the second quarter due to the company's acquisitions and continued mix shift of good to direct in EMEA. Shin added, “While we believe that full year EBITDA guidance is likely conservative, we believe the cadence of EBITDA growth through the year will be uneven.” Morgan Stanley lowered Q2 EBITDA estimate from $73 million to $67 million. Shin currently holds an Overweight rating on Groupon with a $13.00 price target, noting strong penetration in mobile. With respect to the company's future, the analyst concludes, “Transitions take time, and Groupon's change to pull from push has been uneven and likely will be uneven for a few more quarters as the move to pull is still in the early innings. Yet, we believe Groupon should post accelerating growth in customer and local billings in 2H of 2014, but large improvements in profitability may lag until 2015.” Shares of Groupon closed at $7.08 on Thursday.