Can Groupon Inc (GRPN) Stock Become Its Own Best Deal?

Advertisement

Depending on who you ask, Groupon Inc (NASDAQ:GRPN) is either on the verge of a recovery or will continue to suffer in obscurity for the foreseeable future. And GRPN stock, which has down some 86% in five years, has done little to support its advocates — many of whom argue that the daily deals giant is simply misunderstood.

The Good and Bad Side of the GRPN Stock Deal

Opponents, or the bears, who have gotten rich off of the company’s struggles, insist Groupon has no viable market, asserting it never had and likely never will. What’s not debatable, however, is that if you’ve owned GRPN stock since its inception in 2011 — which was the high point of the daily deals market — you’re drowning in losses.

GRPN stock closed Thursday at $3.52, up 1.4%. The shares have risen about 5% year to date, compared with a 2% gain in the S&P 500 Index.

On the positive side, Groupon, which has grown organically, has worked aggressively to reduce its losses, which has improved profitability — albeit slightly. At the same time, thanks to a combination of strategic advertising, group-based targeting and what the company calls “efficient segmentation,” Groupon has begun to grow its subscribers — both from online and mobile platforms.

However, Groupon has yet to show that it can translate that growth to higher profits. And that continues to pressure GRPN stock.

The company is scheduled to report fourth-quarter fiscal 2016 earnings results in a couple of weeks. For the quarter that ended in December, Wall Street expects the company to post a per-share loss of 2 cents, which would reverse last year’s 4-cent profit. Meanwhile, fourth quarter revenue of $914.17 million would decline by about 0.3%.

On their own, these measures aren’t bad, given not only the improved fundamentals, but also the execution by management.

In the third quarter, for instance, quarter GRPN beat the consensus estimates in almost every metric. Despite the 1-cent loss in EPS, that beat estimates of a 2-cent loss, while revenue of $720 million beat forecast by about $10 million. Notably, the revenue beat was achieved despite a 5% decline in global units sold which fell to 49 million. But this, too, was driven the company’s decision to exit various countries as it restructures the business.

What’s really important, however, is that Groupon’s business in North America — its bread-and-butter regions — grew 4%. And not only did the company raise its revenue guidance for the full year to between $3.07 billion and $3.15 billion, Groupon also boosted its EBITDA.

When Q4 results are released, analysts will want to see these trends improve and get confirmation from the management that Groupon is on track to meet its stated growth and profit objectives.

Bottom Line for Groupon Stock

Groupon over the past year has reduced its country footprint to 26 markets. The management’s goal is bring that total to 15 in the near future. While this means revenue will continue to decline, its costs will decline too.

To the extent Groupon can grow its profit margins and become more efficient, which is the ultimate goal, GRPN stock could be a bargain. But I recommend waiting for the earnings to be released and hearing what the management says about outlook for 2017 and how many more markets/countries are left to trim.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/groupon-inc-grpn-stock-best-deal/.

©2024 InvestorPlace Media, LLC