Loop Capital Starts Groupon At Hold, Points To Co History As Reason To Have Muted Expectations For Performance

Although Groupon Inc GRPN has grown its revenue by adding a significant number of new customers, while streamlining its operations to boost future profitability, the company would need to “overcome a history of inconsistent execution and tepid growth” to warrant a more bullish rating, Loop Capital Markets’ Blake Harper said in a report.

Analyst Harper initiated coverage of Groupon with a Hold rating and a price target of $6.

New Customer Adds

Groupon has been making substantial investments into acquiring new customers in a bid to boost Local growth. The company’s Local revenues in North America grew 6-8 percent over the past three quarters, as compared to the flattish trend over the three prior years.

Groupon projected a 100 percent ROI on its marketing spend and a payback period of 12 to 18 months. “We believe this is the path to eventually achieving 10%+ growth in Local NA revenues and subsequently revaluing the stock higher,” analyst Harper wrote.

Streamlining Operations

Groupon also prioritized streamlining its operations, exiting unprofitable countries and cutting down on low-to-no-margin ecommerce sales. The company is likely to generate margin expansion through 2017, Harper mentioned.

On The Sidelines

“We believe there is value in the stock at this level but GRPN needs to execute well for multiple quarters in a row, show clear growth in Local and better EBITDA margins (8% in 2015, estimated 5% in 2016) to be revalued higher,” the analyst commented.

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