Morgan Stanley On Groupon: 'Satisfied Customers Equals Stable Demand'

In a report Wednesday, Morgan Stanley analyst Dean Prissman commented that proprietary survey and churn analysis targeted at both older and newer customers pointed to "continued stability" in Groupon Inc's GRPN Local business.

Based on the analyst's surveys, Groupon Local satisfaction rates were "remarkably high" at above 90 percent as Groupon has successfully transitioned away from the reliance on email blasts that's led to mixed business performance.

However, Prissman cautioned that his findings also showed "bad news" that customer couponing and commission rates concessions cap upside for the company. The analyst explained that stability in North American Local demonstrates a "clear move" in the right direction, but declining take rates "casts doubt" on the flow-through to profitability and an ability to forecast material upside.

Prissman concluded that demand for Groupon's services are indeed stable, but the declining take rates implies a more balanced risk to reward profile for shares.

Shares are Equal-weight rated with a $9 price target.