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Bank Of America Says Expectations For Groupon Are Still Too High

Bank Of America Says Expectations For Groupon Are Still Too High

Shares of Groupon Inc (NASDAQ: GRPN) were trading lower by 2 percent Friday after analysts at Bank of America said the stock deserves to trade at a discount and has few catalysts ahead to spur growth.

Bank of America's Akshay Bhatia reinstated coverage of Groupon's stock with an Underperform rating and $3.50 price target, which implies downside moving forward.

Where Will The Growth Come From?

Groupon executed well throughout 2016 in simplifying the business, leaving unprofitable regions and refocusing on its core Local offering while also growing its customer base, the analyst noted. Despite these initiatives, the company is expected to "struggle" with showing sustainable and profitable growth at a time when customer retention trends are being "challenged."

Meanwhile, Groupon's churn rate is worsening and a Bank of America e-commerce focused survey in May 2017 found that Groupon has the second-highest number of respondents who said they will decrease or stop altogether usage at 39 percent.

Groupon's search interest on Google has "trended down globally" as search interest stands at roughly 70 percent of 2011's peak levels.

For these reasons, the analyst thinks the Street's estimates are "overly optimistic" and Bhatia's 2018 and 2019 EBITDA forecasts are 16 percent and 20 percent below the consensus estimates, respectively.

Bottom line, Groupon has "limited" top-line growth versus its peers and its history of inconsistent revenue trends, elevated advertising spend and limited operating leverage justifies a discount valuation versus its peers.

The analyst's $3.50 price target is based on an 8.5x EV/EBITDA multiple to 2018 estimates, which is notably below the eCommerce group average of 14x.

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Image credit: Mike Mozart, Flickr

Latest Ratings for GRPN

Feb 2019Initiates Coverage OnNeutral
Sep 2018Initiates Coverage OnNeutral
Jul 2018MaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for GRPN
View the Latest Analyst Ratings

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PNRJefferiesInitiates Coverage On
IPHIBank of AmericaMaintains80.0
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