Groupon’s Stock Up 50% This Year, Price Estimate Revised To $4.50

by Trefis Team
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Groupon (NASDAQ:GRPN) has undergone some major restructuring in recent quarters, as it has been exiting some key markets for a while now. Groupon was operating in almost 50 countries a couple of years ago, a figure which is now down to 15 countries. The company took these steps in a attempt to boost profits, and it has been a success thus far. In recent quarters, the company reported a significant decline in operating expenses and a boost in profits. Groupon’s net income per share (GAAP) has been negative since its IPO, while the company has barely reported a profit (non-GAAP). Groupon’s net profits in the last three years have been a few cents a share with its market price falling from its IPO price of over $20 to low single digits in recent years.

We have a revised $4.50 price estimate for Groupon, which is around 20% lower than the current market price. Groupon’s stock price has risen by over 50% in the last year, from $3.30 at the beginning of the year to $5.50 currently. Below we take a look at why Groupon’s stock price has surged this year and why we revised our price estimate from $4 to $4.50. We also take a look at why we remain conservative with our estimate.

See our complete analysis for Groupon here

Groupon’s Restructuring Has Led To Lower Revenues

Groupon has brought down its international presence to streamline its operations. The company intends to primarily focus on certain high-performing regions across North America and Europe. As a result, the company’s gross billings for the third party goods business in the international segment has fallen in recent quarters. A shift away from third-party goods makes sense, since competition among various e-commerce and online booking companies has led selling prices to drop. Moreover, comparison websites divert customers away from discount websites. Furthermore, the direct sales business has been low performing in North America this year. Consequently, we have revised our forecast revenues for this year and subsequent years, as shown below.

Despite lower gross billings for the third-party stream in the international segment, Groupon has performed well in direct sales in strong-performing areas. The renewed focus on North America and Europe has led to the addition of new customers in recent quarters. The total number of active users has risen by over 7% this year to over 49 million customers this year on a trailing twelve month (TTM) basis.

Lower Expenses Have Helped Improve Margins

The company’s intent to focus on high-performing markets has reflected positively in the company’s recent earnings. Groupon’s selling, general and administrative (SG&A) expenses have fallen over 10% y-o-y to just under $677 million through the first three quarters of the year mainly driven by cost cutting efforts by the company, including reducing its headcount. As a result, we’ve revised our forecast for SG&A expenses. Lower marketing and employee expenses have lead to an improvement in operating profits and EBITDA margins for the year.

With presumably lower order discounts and relatively lower new customer acquisition costs in markets it intends to stay in, Groupon is seemingly on course to improve profitability in the long run. However, the company has moved away from many international markets, thereby reducing its potential addressable market size.

You can modify the interactive charts in this article to gauge how changes in individual drivers for Groupon can have on our price estimate for the company.

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