Alibaba Stake Big for GPRN Stock
In just five days, Groupon Inc (NASDAQ:GRPN) has shocked the market with two great news headlines. Investors should take note that these two developments could lead to a windfall for GRPN stock in 2016.
Rich Williams seems to have come as a blessing to the company. The newly appointed CEO of Groupon took the helm only three months ago and is already making the impossible possible.
Recall that Groupon had a miserable year throughout 2015. In the third-quarter report for 2015, the company not only missed Street estimates by a margin, but also guided lower.
But within just three months, Williams managed to bring the company back from the dead.
The company exited 17 of its unprofitable markets, streamlined its business, shuffled its C suite, appointed some new executives, narrowed its focus on its biggest market (North America), and managed to deliver robust results in the fourth quarter, followed by a better-than-expected guidance for 2016.
But the best is yet to come…
The beaten down daily-deals web site not only beat the Street’s estimates this week, but it also managed to kindle potential acquisition interest from an industry heavyweight.
Yes, seeing value in the revamped Groupon, one huge Internet services conglomerate has quietly built up its stake in Groupon.
Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) has disclosed a 5.6% stake in Groupon in its latest 13F SEC filing.
But what exactly does it mean for Alibaba?
What’s in It for Alibaba?
At a cursory look, it seems like just another one of Alibaba’s investments. Alibaba has previously invested in privately held U.S. businesses like Lyft and Jet.com to gain more insight into the U.S. consumer market. But look closely and something peculiar will catch your eyes, which hints that Alibaba may have bigger plans with Groupon.
Alibaba is a huge phenomenon in the world’s second-biggest economy, China. But here in the world’s biggest economy, Amazon.com, Inc. remains the undisputed leader of e-commerce. To launch a full-blown e-commerce business in the U.S. would certainly be a risky venture, especially for a Chinese company that doesn’t understand the American consumer’s tastes and doesn’t know all the demographics.
But there’s another way BABA stock could make this possible—that is, by acquiring a U.S. company with established roots in the market.
Now, you likely are arguing that Groupon’s business model isn’t really comparable to the likes of Alibaba and Amazon.
Well, think again!
In Groupon’s latest quarter, the one segment that posted positive growth and helped the company in reporting better-than-expected results was its goods/e-commerce segment. Instead of local deals and travel billings, which once formed Groupon’s core, sales of merchandise kept Groupon afloat.
The goods segment is turning out to be the next big segment in Groupon’s revenue mix, as more and more sellers have started using Groupon to list their products. It is interesting to note that the nature of Groupon’s business is becoming increasingly dependent on e-commerce, following in the footsteps of Amazon and Alibaba.
The Bottom Line on GRPN Stock
Based on this premise, it makes perfect sense for Alibaba to invest in, and eventually acquire, Groupon.
Even if Alibaba’s interest doesn’t go beyond its investment, Groupon still offers promising value. A hefty 21% of its outstanding shares are held by insiders, whose high ownership stakes keep their loyalties with GRPN stock.
The company’s fundamentals have increasingly improved under the new CEO. At the same time, Groupon has been rewarding shareholders through share buybacks.
In a nutshell, GRPN stock looks like a bargain following these promising developments.