Groupon Is Starting To Look Like A Better Deal

Groupon IncGRPNThomas ChampionGroupon's stock rating from Underperform to Market Perform with a price target boosted from $3.50 to $5.00.

Groupon's North American local segment is now showing investors a more consistent growth profile, Champion explained (see his track record here). In the second quarter, the company showed a billings growth of 14 percent on a year-over-year basis while revenue and gross profit both rose 13 percent. Perhaps more notable, billings, revenue, and gross profit growth for the first half of 2017 all accelerated versus the same period a year ago.

Groupon's improvements in the local segment is encouraging given the gross margin profile is superior to other units such as travel and goods, the analyst added. Groupon's new products, including Groupon+ and BeautyNow adds another element to the company's more encouraging outlook, Champion continued. The new initiatives are not only mobile-centric but a sign that the company has evolved from the dated paper-based vouchers.

Groupon's active customer base of 48 million users remains strong and is expected to grow through the rest of 2017, Champion said. However, the case for being bullish on Groupon's stock is based on an increased frequency of purchases by the user base. Specifically, the analyst's checks show that the most active users buy around 2.2 purchases a month, and as a whole, users buy four to five deals a year. Until these metrics show signs of improvement then investors may want to hold off on becoming more constructive on the stock.

At time of publication, Groupon shares were up 3.67 percent at $4.80.

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