Analysts In Wait-And-See Mode On Groupon After Business Shift, Weak Q4 Earnings

After a disappointing fourth quarter and a decision by Groupon Inc GRPN to give up on its "Groupon Goods" online merchandise sales business, sell-side analysts dropped price expectations on the stock and issued reminders about ongoing headwinds for the Chicago-based marketplace company.

Groupon said Tuesday it will stop selling merchandise by the end of the year and focus instead on connecting customers with deals on local "experiences" such as dining and entertainment.

The company said focusing on its "rapidly growing" local experiences marketplace will allow it to return to growth quickly, but the move couldn't keep the stock from falling to an all-time low Wednesday or stave off a law firm's plans to consider an investor lawsuit against the company.

The Groupon Analysts

Credit Suisse analyst Stephen Ju lowered the Groupon target price from $4 to $2 and maintained a Neutral rating.

Wedbush's Ygal Arounian also remained Neutral and lowered the price target from $3 to $1.75.

The Groupon Theses

Analysts' reactions were mixed, noting that exiting the goods business may be a positive in the long run, but that the local market also has headwinds, and righting the ship will take time.

Arounian drastically lowered 2020E EBITDA estimates from $295 million to $128 million and warned there remains potential downside beyond that.

"While the Goods business was certainly a drag, the Local business also needs improvement," Arounian wrote in a note. "While there will be an increased focused without Goods, the turnaround here is squarely contingent on execution, and Groupon management is hardly going to receive the benefit of the doubt in the near-term and will need to consistently hit on the targets it set to rebuild any credibility after 4Q results."

Ju also remains in wait-and-see mode following the company's shift in focus.

"While the company expects to rationalize its expense structure as it shifts focus toward growing its Local’s business – we anticipate that profitability for the next few quarters will be heavily affected by the exit of a segment that had contributed about 17% of FY19 gross profit dollars," Ju wrote.

GRPN Price Action

After a drop of 40% on Wednesday, Groupon shares were on the rebound a bit Thursday, trading at $1.73.

Related Links:

Groupon Investigated By Law Firms As Shares Plummet 44% After Q4 Earnings

Groupon Plunges On Q4 Miss, Exit From Goods, Focus On Experiences, Proposed Reverse Stock Split 

Photo credit: Rusty Clark ~ 100K Photos, Flickr