Groupon Inc (GRPN) Isn’t Cheap Enough for a Buyout

GRPN has plenty of downside before it's time to take social media buyout rumors seriously

Groupon Inc (GRPN) shares fell sharply Thursday as doubts continued to mount about GRPN’s chances of pulling off a turnaround. That has social media chattering about the pros and cons of a buyout.

Good luck with that. It’s not that it’s unthinkable that Alphabet Inc (GOOGGOOGL),, Inc. (AMZN) or Alibaba Group Holding Ltd (BABA) — among others — could swoop in eventually. It’s just that with the trend in GRPN stock now decisively down, what’s the hurry?

GRPN has struggled mightily to monetize operations since its initial public offering nearly five years ago. Recent glimmers of hope — and unfounded buyout chatter on social media — have helped make GRPN stock especially volatile this year. That’s a turn off.

So is the sell side’s opinion of this name. Of the 18 analysts covering Groupon, two have it at sell and 13 call it a hold. It hasn’t received an upgrade from a major shop in ages. In fact, it has been downgraded twice to sell this year.

On the plus side, GRPN is making headway with its turnaround. It just sold its operations in Indonesia, which had just 1-million customers. It will retain a stake in the company, but that appears to be the end of it.

The company continues to examine its other international markets to determine if carrying them makes sense. Groupon realizes that its focus on rapid international expansion was a mistake. Resources are better used toward developing local core businesses.

GRPN Stock: Cheap for a Reason?

It’s a credible plan. Perhaps an outsider believes it has the answers. It’s not like Groupon has zero value. The company does have close to 50-million active users, a number that it has slowly been rebuilt over the last year-and-a-half. The trend is indeed up.

So, yeah, it’s not unreasonable to think there’s a company out there somewhere that can prise better performance out of GRPN. And the stock does keep getting cheaper. In the last year, it has lost a little over 45% of its value. At less than $4 a share, the market cap comes to less than $2 billion.

Any time a company continually gets cheaper, it raises its profile as a target — but not as much when the bottom is still so far away.

We already know that Groupon stock traded as low as $2-and-change over the last 52 weeks. It just failed to break through its 200-day moving average. Analysts’ average price target leaves implied upside of only 8%. That’s not a buy with Groupon’s bucket of risks.

Groupon is always surrounded by takeout rumors. If it were truly in play by companies as closely covered at AMZN or GOOG, we’d know by now. Near as we can tell, there’s no market here.

Maybe a private equity firm will step up, but there’s a chance that there are no buyers at any price. Don’t be surprised if GRPN stock needs to set new lows and then some to look good to anyone.

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

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