2 Analysts Abandoning Groupon… And 1 Still Buying
- Shares of Groupon Inc (NASDAQ: GRPN) were trading lower by more than 30 percent shortly after Wednesday's opening bell.
- Investors and traders fled the stock after the company announced a poor sales outlook.
- Wall Street's reaction wasn't all doom and gloom as analysts at Brean Capital maintained a Buy rating on the stock.
Groupon announced it earned $0.05 per share in the third quarter on revenue of $713.6 million. Analysts were looking for an earnings per share of $0.02 on revenue of $732.7 million. The company also announced that its CEO Eric Lefkofsky will return to his role as Chairman and Rich Williams has been appointed as CEO.
Groupon guided its fourth-quarter revenue to a range of $815 million to $865 million, falling short of the $956.83 million analysts had already forecasted. The company also said it expects to earn as much as $0.01 per share (and can lose up to $0.01 per share) in the coming quarter – noticeably short of the profit of $0.07 per share analysts also forecasted.
Groupon's stock remained halted heading into the company's post earnings conference call. During the call, management guided its fiscal 2016 sales to a range of $2.75 billion to $3.05 billion – short of the $3.19 billion analysts were expecting. The company's projected EBITDA of $100 million was also disappointing as the Street was expecting an EBITDA of $339 million.
Piper Jaffray Downgrades To Neutral
Gene Munster of Piper Jaffray downgraded Groupon's stock to Neutral from Overweight with a price target slashed to $2.50 from a previous $7.50.
According to Munster, the bulk of Groupon's 2016 revenue guidance shortfall is due to the management's decision to restructure and exit certain markets, double marketing spend year-over-year to drive adoption, and reduce its focus on consumer electronics.
Munster said Groupon's strategy of increased marketing may not necessarily be the best choice as it doesn't solve the company's "underlying challenge," which is "building a more compelling product that virally attracts users." The analyst pointed out that "standout" Internet companies like Amazon.com, Inc. (NASDAQ: AMZN), Facebook Inc (NASDAQ: FB), and Netflix, Inc. (NASDAQ: NFLX) "obsess" over their own product experience and "rarely" focus on marketing.
Munster added that local Internet advertising is a "notoriously difficult" segment and Groupon's decision to drive adoption through marketing is not a long-term solution. The analyst suggested that viral and simple products are "key to solving local" and Groupon's "efforts are best made there."
Finally, Munster stated Groupon's stock is not "value-investor ready" and "fundamental growth re-ignition has yet to be demonstrated." As such, shares of Groupon represent "dead money" and will go through a period of consolidation until a "clear path to growth" is demonstrated.
Bank Of America: 2016 Guidance Was A ‘Big Surprise'
Paul Bieber of Bank of America downgraded Groupon's stock to Underperform from Buy with a price target lowered to $2.75 from a previous $5.50.
According to Bieber, the "big surprise" during Groupon's conference call was its revenue and EBITDA guidance which was attributed to management's decision to accelerate new customer acquisition and de-emphasize lower margin consumer electronics sales.
Bieber said overall sentiment surrounding Groupon will "remain negative" until the company is able to prove that its marketing investments are resulting in higher growth – which isn't projected until late 2016 or 2017. The analyst also highlighted that Internet companies have demonstrated "mixed success" of driving accelerating growth through market investments.
Finally, the analyst slashed his 2015 revenue and EBITDA estimates to $3.06 billion and $242 million from a previous $3.17 billion and $290 million, respectively. He also lowered his 2016 revenue and EBITDA estimates to $3.0 billion and $116 million from a previous $3.52 billion and $336 million, respectively.
Related Link: Brean Cuts Groupon Price Target, But Remains Optimistic
Brean Capital: Maintaining At Buy
Tom Forte of Brean Capital maintained a Buy rating on Groupon's stock with a price target lowered to $5 from a previous $8.
According to Forte, Groupon's appointment of Rich Williams as CEO was a solid decision as he is the "right person to lead Groupon in its chapter." The former COO has been with the company since 2011 and will replace Eric Lefkofsky who will return to his prior position as chairman. The analyst suggested that Lefkofsky performed "admirably" and Williams "will be able to lead the company" moving forward.
Commenting on Groupon's outlook, Forte argued that marketing spending should drive future returns for Groupon and its decision to focus on Groupon Goods will lead to a "potentially higher quality" and "higher margin" opportunity. In addition, a review of its international portfolio should also result in a "stronger company."
Finally, Forte argued that Groupon's stock is trading at a "meaningful discount" to its peers on a forward P/E and EV/EBITDA basis. A $5 price target is based on the analyst's discounted cash flow analysis, which is predicted upon the company achieving a long-term adjusted EBITDA margin of 17.0 percent (versus just 7.9 percent in 2014).
Latest Ratings for GRPN
|Mar 2017||Barclays||Initiates Coverage On||Underweight|
|Mar 2017||Citigroup||Initiates Coverage On||Neutral|
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