RBC Downgrades Groupon To Underperform, Cites 'Deteriorating Fundamentals'

Groupon Inc GRPN reported robust Q1 results, with the revenue beating the estimate and the consensus.

RBC Capital’s Mark S. Mahaney downgraded the rating on the company from Sector Perform to Underperform, while lowering the price target from $4 to $3.

Mahaney mentioned that the 1Q EPS results “highlighted deteriorating fundamentals and substantial challenges for the company going forward.”

1Q Results

Revenue for the quarter came in at $732 million, with EBITDA of $31 million. Both metrics beat the consensus.

The analyst noted that Groupon was making progress on its core goals, although traction seemed to be “extremely slow.”

The company reaffirmed its revenue guidance for 2016 at $2.75-$3.05 billion, while raising its EBITDA guidance by $5 million to $80-$130 million.

Total billings declined during 1Q, with the growth in North American billings decelerating. Revenue growth rates in North America also declined during the quarter on tougher comp.

However, Groupon added 950,000 active customers in North America, the highest net addition in eight quarters.

It’s A Fundamental Issue

“While there were a few positive/neutral data points (North America Active Customer growth) in the March Quarter print, we see very few signs of a turnaround in fundamentals at Groupon,” Mahaney stated.

The analyst pointed out that growth in North American units, local billings, gross profit and revenue all decelerated and are expected to continue to decline in the foreseeable future.

Also with local presence of the largest Internet platforms, successfully executing a turnaround could become more and more expensive for Groupon.