Just Bail on GPRN Stock?
To say Groupon Inc (NASDAQ:GPRN) stock has big upside potential is a little misleading. It has potential because it doesn’t have much else going for it right now…
Trading near $3.30 per share, GRPN stock is down 32.3% year-over-year. While Groupon stock’s share price is up eight percent year-to-date, the impetus for the early February boost is fading fast.
With nothing to help move Groupon faster, chances are good that it will stay a sub-$5.00 penny stock for a long time. This is great news if you’re a patient, tech-loving penny stock investor who doesn’t mind leaving money languishing on the table. If you’re looking for real, sustainable growth, though, you might want to look elsewhere.
Investors love tech companies because of the untold potential. You can start a social media site in your dorm room at Harvard and become a billionaire or you can get behind the curve and go the route of Myspace.
Wall Street is full of tech stock successes, failures, underdogs, and has-beens. Few have burned so bright, yet been so underwhelming as Groupon.
It didn’t start out that way, though.
The local online commerce company opened to great fanfare when it went public in early November 2011. In fact, with a value of approximately $13.0 billion, it was the biggest initial public offering (IPO) of an Internet company since Google went public in 2004.
Unfortunately, the jubilation didn’t last long. Groupon’s share price has been disappointing investors ever since. Trading near $3.30 per share, the company’s share price is down roughly 90% from its IPO price of $28.00 per share.
Despite holding a third of its market cap in cash ($688.5 million), Groupon has had a little trouble with profitability. In its first earnings release as a public company, it posted a fourth-quarter 2011 loss of $9.8 million. In the first quarter of 2016, it reported a loss of $49.1 million.
Investors have a decent history of ignoring profits—and overreacting when a company posts a small profit—when it comes to technology stocks, but even they have their limits.
Of Course, Groupon’s Stock Price Could Soar “If”…
One thing analysts are good at is suggesting that a company’s share price could soar if such and such happens. That holds true for every asset that has ever been or ever will be.
With Groupon, that seems to be the hot air holding this stock afloat. Investors aren’t excited about Groupon because of what it is; they seem more interested in what it could be—or, at the very least, what someone else sees in it.
Case in point: the most exciting thing to happen to Groupon since going public was news that Alibaba acquired nearly 33 million shares, or a 5.6% stake in Groupon, in the fourth quarter of 2015. Investors cheered, sending Groupon’s share price soaring 40%. Over the following weeks, Groupon’s share price topped $5.00 per share. (Source: “Groupon rises from the dead as Alibaba buys stake,” CNN, February 16, 2016.)
It’s tough to keep the momentum going when the underlying fundamentals don’t show up to the party. In late April, investor optimism turned sour when the company reported that first-quarter gross billings were down, revenue slipped, gross profit declined, adjusted EBITDA tanked, and its net loss soared. On the plus side, Groupon has $688.5 million in cash and no outstanding borrowing under its revolving credit facility. (Source: “Groupon Announces First Quarter 2016 Results,” Groupon Inc, April 28, 2016.)
Over the ensuing months, I’ve heard analysts say…
Groupon’s share price could soar if the company was acquired by a company like Microsoft Corporation, Alphabet Inc, or Amazon.com, Inc.…
Groupon’s share price could soar if it surprises Wall Street and posts better-than-expected results…
Groupon’s share price could also soar if it corners the online-to-offline (O2O) commerce market…
There are a lot of ifs when it comes to Groupon.
That said, there are reasons to be optimistic about Groupon’s long-term prospects. It streamlined and focused its operations in May when it offloaded its “Breadcrumb” point-of-sale (POS) platform and in early June when it sold off Groupon Indonesia. Groupon also recently introduced a national TV ad campaign, urging people to get out there and “Own the Experience”—which, naturally, you can only do with Groupon. (Source: “New Groupon TV Ad Campaign Urges People to Go Out and ‘Own the Experience’,” Groupon Inc, May 23, 2016.)
Will the new ad campaign work in helping Groupon turn the corner? Time will tell—and that’s the one thing Groupon has going for it. With close to $700 million in cash, it can buy itself lots of time.
That doesn’t mean investors can’t make money off Groupon; clearly, they can. Groupon makes solid, short-term moves almost monthly. It’s just important to have realistic goals and to take small profits. For now, though, there are too many uncertainties in Groupon’s future to make it a long-term hold.