Needless to say, Wall Street analysts are scrambling to assess the carnage.
There have been a variety of downgrades on Groupon’s stock, accompanied by some scary-sounding opinions. The general consensus is that the core coupon business is quickly dying and that the company is scrambling to make up for it with an aggressive move to sell physical goods. The problem? The business has much lower margins, which won’t do much to buoy the stock.
Evercore’s Ken Sena, for instance, dropped his price target from $3 to $2, and thinks Wall Street doesn’t understand Groupon’s cash situation.
While Groupon has $1.2 billion in the bank, it really is not an accurate reflection of the company’s financial situation, as GRPN holds onto huge amounts of cash on behalf of its merchants — for instance, in the latest quarter, that cash was up against $600 million in payables and accruals. Still, there shouldn’t be a liquidity crisis — at least for the next year.
However, the move into physical goods will likely mean lower levels of EBITDA — given that Sena thinks the proper multiple is about 6X, Groupon’s stock should be trading at about $2 right now.
Meanwhile, Benchmark Co. dropped its target from $7 to $4, and Barrington Research downgraded GRPN from “outperform” to “market perform.”
Of course, not every analyst is ready to watch GRPN fall further. Hudson Square analyst Dan Ernst did downgrade GRPN shares to “hold” … but at a $12 price target.
Guess we have a quadrupler on our hands.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.“ Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.