Company Reports

We will discontinue analyst coverage of Groupon on or about March 15, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

While there were some early indications of a turnaround, such as a significant slowdown in the year-over-year decline of gross billings, Groupon continued to burn cash during the quarter, further increasing the risk of becoming cash-strapped. For this reason, the firm announced it will raise nearly $100 million through the combination of a fully backstopped rights offering and the sale of some of its stake in SumUp. Given the rights offering, management also provided fourth-quarter guidance and some color regarding 2024, most of which was in line with our projections. After considering the dilutive impact of the rights offering, we lowered our fair value estimate to $17.50 from $19.00 per share.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

Groupon’s slide continued in the second quarter as the firm is still struggling to maintain its local merchant supply and active customers. The decline in active customers slowed a bit sequentially but was still a 17% year-over-year decline, which further reduces the likelihood of a network effect. We did not make any significant adjustments to our model and are maintaining our $19 fair value estimate for no-moat Groupon.

The probability of Groupon creating a network effect continues to decline, as demonstrated by lower usage, user monetization, and merchants or the supply side. Under the leadership of interim CEO Dusan Senkypl, the firm’s focus remains on increasing the supply or merchants on the platform, but from a different angle, which we believe may show results next year. Groupon is aiming to become a marketing partner with merchants by providing options in terms of products and offering placements at varying take-rates for different types of campaigns—from customer retention and increasing customer frequency to quick and more direct-response customer acquisitions. While we do not expect merchants to be significantly attracted to the platform we also don't expect the partnerships to create any switching costs; we are assuming some improvement and an overall increase in the number of merchants and the level at which they participate on the platform.

Groupon management continues to play musical chairs. Kedar Deshpande has stepped down as CEO, and the board has appointed Dusan Senkypl as interim CEO. Deshpande will no longer be on the board but will act as an advisor during the transition. Senkypl, who joined Groupon’s board last year, is the co-founder and CEO of Pale Fire Capital, which is Groupon’s largest shareholder with a 22% stake. The move may create a bit more urgency in turning the company around; it could also indicate that the firm is seeking a buyer. Pale Fire has a private equity side, so this move could also be in preparation to sell Groupon’s stake in SumUp, which is valued at around $6 per share (our estimate based on SumUp’s last funding round per PitchBook), much higher than Groupon’s current stock price, and then take the firm private.

Groupon's task of creating a network effect on its platform is becoming more difficult as both the demand and supply sides continue to weaken, demonstrated by the firm's fourth-quarter results. While management's latest strategy is to focus on increasing inventory and targeting mainly large merchants, the firm will be facing higher acquisition costs. As Groupon continues its restructuring, which is simply cost cutting, we think the demand side of Groupon's network could weaken further. We have lowered our top- and bottom-line projections resulting in a $19 fair value estimate, down from $27. While the stock is trading at a significant discount to our fair value estimate, our Uncertainty Rating remains Very High. We expect volatility to continue until the firm's active customers and monetization stabilize or begin to strengthen, which we are assuming will take place in 2025. The stock is also trading at more than a 30% discount to the valuation of the firm's 2.3% stake in SumUp, which, based on data from PitchBook, we still estimate to be around $6 per share.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

Groupon yet again missed expectations with its third-quarter results. The firm continues to struggle to increase both demand and supply on its platform as user count and engagement declined while inventory density remains below expectations, which further drives away users and supports our assumption that the platform lacks network effect. The couple of positive things from the third-quarter results and the earnings call was a deceleration in user loss in the international market and a slowdown in overall purchase frequency decline.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

Groupon posted another disappointing quarter, missing on the top and bottom line with respect to the FactSet consensus estimates as the app’s user count and purchase frequency declined year over year. Additionally, the firm pulled its full-year 2023 guidance given the revenue growth uncertainty. There were some bright spots including higher gross profit generated per customer than in 2021. However, given the lack of moat sources, the network effect and switching costs, to help a return to consistent revenue growth, Groupon needs to be more aggressive on the marketing side and increase efforts to improve user experience on the app going forward. Both of these initiatives will result in mere single-digit revenue growth and limited margin expansion. While management is taking that route, execution and timeliness of the plan remain very uncertain. We adjusted our projections lower, resulting in a $29 fair value estimate down from $38.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

Groupon reported miserable first-quarter 2022 results, widely missing the top- and bottom-line FactSet consensus estimates. The firm also provided very disappointing guidance for the current quarter and full year. Surprisingly, what appeared to be an ongoing healthy recovery in local and travel revenue came to an abrupt halt due to lower merchant demand, as many merchants have been enjoying high direct consumer demand accompanied by a likely improvement in inventory management, both of which lessen current need for Groupon’s discount provider platform. While we were pleased with management’s strategy to offer merchants more than just a marketplace for low-demand and/or discounted services, management has stated similar goals in the past. However, at the same time, we still expect improvement in customer monetization as Groupon continues to provide another marketing channel for merchants to target the firm’s 16 million customers and 100 million users accessing the app and website monthly.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

Groupon reported fourth-quarter results that missed FactSet consensus estimates on the top and bottom lined mainly because of the omicron variant. Continuing recovery from the pandemic drove double-digit local and travel revenue growth, which we think bodes well for Groupon this year as more consumers and merchants could join the marketplace. However, without a network effect moat source, Groupon still must aggressively market to consumers and provide features such as no restrictions to merchants to strengthen the supply/demand side of its platform. We did not make any significant changes to our model and are maintaining our $53 fair value estimate. This very-high-uncertainty name continues to trade at a significant discount to our fair value estimate.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

Groupon finally appointed a permanent CEO, Kedar Deshpande, who will replace Aaron Cooper, the firm’s interim CEO, beginning on Dec. 10. Deshpande will also serve on Groupon’s board. Prior to this, Deshpande was the CEO of Zappos, an online retailer that was acquired by Amazon in 2009. We are maintaining our no-moat rating and $53 fair value estimate of Groupon.

As a first mover in the local-market daily deals space, Groupon has captured a leadership position, but robust profitability has not followed. While there have been some indications of improvements thanks to the firm's restructuring plan, we are skeptical about Groupon's ability to accelerate top-line growth and expand margins over the long run.

We are maintaining our $53 fair value estimate of no-moat and very high uncertainty rated Groupon. The firm’s third-quarter revenue and adjusted EBITDA came in ahead of the FactSet consensus estimates. While a decline in goods revenue again pressured top-line growth, demand for local and travel services continued to increase, which improved gross profit generated per active customer, albeit with a continuing decline in the active customer count. We remain confident that the firm’s consumer app and merchant self-service dashboard enhancements, plus higher inventory and continuing macroeconomic recovery will stabilize the active customer count and drive further growth in gross billings and revenue of local and travel in 2022 and beyond.