Groupon’s new leadership sparks hope

By Xiumei Dong

Groupon Inc. is stepping up big this Valentine’s Day with promotion specials that offer lovers the chance to buy land on Mars. As the Chicago company restructures its leadership team, analysts see a slight hope for the stock in 2016.

Four analysts rate Groupon a buy, two analysts rate it a sell, and 15 rate it a hold, according to Bloomberg. The consensus target price for Groupon is $3.19. The stock closed Tuesday at $2.22, an all-time low.

“GRPN has a great shot to carry over its end-of-year momentum into 2016,” wrote Brian Nichols, research analyst at Seeking Alpha, on Dec. 27, 2015. “Not only is the stock cheap…but its Groupon Goods business continues to perform quite well.”

Groupon operates online local commerce marketplaces that connect merchants to consumers by offering goods and services at a discount. After the post-IPO stock price high of $31.41 in 2011, the stock tanked.

“Just looking at the stock chart, it says a lot about the company,” said Edward Woo, a senior analyst at Ascendiant Capital Markets, in an interview. “They had a big IPO, then had a big decline, and a big rebound, and another big decline…”

Groupon historical stock prices

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Groupon Inc. stock closing prices since Nov. 04, 2011. (Xiumei Dong/Medill)

The company has a market cap of $1.37 billion and a price-to-earnings ratio of 19.61, compared to 16.86 for the Standard and Poor’s 500 index.

“Given what we are today, I would still see that as a buy,” said Woo, who has a $4 price target on Groupon. Woo expects the company will have another strong earnings report from the holidays, helped by a streamlining of international operations, and by accelerated growth in Europe.

Groupon reported a 4 percent increase in active customers worldwide, to 48.6 million, in the third quarter of 2015, comprising 25.2 million in North America, 15.4 million in Europe, the Middle East and Africa, and 8.0 million in rest of the world.

“Our business is actually stronger than it ever has been,” said Zachary Smith, director of Mobile Products at Groupon, at the Chicago Chief Digital Forum in November. “Last year, we sold 100 million Groupons worldwide. We’ll hopefully beat that this Q4 as well.” Groupon is slated to report fourth quarter 2015 earnings after the close on Thursday.

Groupon had a net loss of $27.6 million, or 4 cents per diluted share, in the third quarter. The loss swelled 30 percent as compared with  $21.2 million, or 3 cents per share, in the year-earlier quarter. Analysts surveyed by Yahoo Finance had been expecting a quarterly profit of 2 cents per share.

Revenue declined 0.1 percent to $713.6 million from $714.3 million.

For the fourth quarter of 2015, Groupon expects revenue of between $815 million and $865 million. It reported revenues of $925.4 million in the fourth quarter of 2014. The company attributed the lower guidance to the unfavorable impact of exchange rates. Analysts expect the fourth quarter to be break-even.

Groupon rejected Google’s $5 billion offer in November 2010, and filed for an initial public offering in June 2011. Since the IPO, the company has struggled to meet the public’s expectation.

“Groupon is a misunderstood company. We’re misunderstood by analysts. We’re misunderstood by media. We’re misunderstood by consumers,” CEO Rich Williams said in a blog post shortly after he was elevated from chief operating officer last November.

As the new CEO, Williams vowed to shift the marketing strategy and simplify the business model, and has made drastic high-level management changes.

William appointed Jay Sullivan as the chief product officer, overseeing product and engineering. Sullivan joined Groupon from Mozilla where he was senior vice president of consumer product.

Aaron Cooper, who had led the company’s North American Goods business, now heads up North American Services, which comprises Groupon’s multibillion-dollar local and travel business. Jacob Hawkins, former vice president of e-commerce at Aéropostale Inc., joined Groupon to succeed Cooper in North American Goods.

“Groupon will be focused on driving a diverse assortment of product across categories,” said Steve Tzeng, a consumer electronics buyer of Groupon. “With our strength of connecting with local businesses, we’ll be able to establish a local supply for customers.”

Groupon has been pushing to drive business in North America and other key markets, while paring down operations in Asia. In May, Groupon sold 46 percent of its stake in Ticket Monster, a South Korean e-commerce business.

“They actually shrank a lot internationally, they pulled out of a lot of emerging markets. They still show interest in India and Korea,” said Woo. “So, they are really just focusing on Europe, another big market besides the U.S.”

Photo at top: Groupon Corporate Headquarters at 600 W. Chicago Ave., Chicago. (Xiumei Dong/Medill)