Groupon Delivers Big Quarterly Surprise
Groupon Could Be the Next Amazon
Yes you read it right. Groupon Inc (NASDAQ:GRPN) could become the next Internet super-stock if the stars align for this battered Internet pure play.
Now, some of you may think I’m delusional, but let me explain why GRPN stock could be setting up for a ramp-up.
GRPN stock surged to $4.80 on Friday, up a whopping 33% over the previous five days and 43% year-to-date. The last time I wrote about Groupon was back in December 2016, when the stock was trading at below $4.00, so we have seen some lift since then. The stock chart indicates a short-term target zone of $5.00 to $5.40.
Chart courtesy of StockCharts.com
The shares of Groupon reacted to a massive fourth quarter in which the provider of daily deals via the Internet blew away estimates.
Fourth-quarter adjusted earnings per share (EPS) of $0.07 per diluted share was an impressive $0.05 above the consensus. Revenues of $934.9 million easily beat the $912.77 million consensus.
Groupon saw growth in North America and the world. What’s stunned the market was an 11.0% surge in North America local billings in the fourth quarter.
A major contributor for Groupon was the acquisition of former rival LivingSocial, Inc., which accounted for four percent growth or 36.36% of the billings growth (Source: “Groupon Announces Fourth Quarter and Fiscal Year 2016 Results,” Yahoo! Finance, February 15, 2017).
The fact that Groupon basically paid very little to buy LivingSocial in 2016 was a big win, especially given that the company was at one time valued at an astounding $4.5 billion.
The Bull Case for GRPN Stock
My view is that Groupon should not be considered a dead stock, as the fourth quarter indicates some promise for the long-suffering GRPN stock.
In fact, Groupon can even take a page from Amazon.com, Inc. (NASDAQ:AMZN). Let me explain.
Groupon had 31.1 million active customers at the end of 2016, adding 2.0 million in the fourth quarter, which is impressive, given that the company added only 3.2 million in the first nine months of 2016. User growth was the highest in four years and suggests that more consumers are coming on to the Groupon platform.
My thinking is as that, as long as Middle America and the world continue to face flat wages, a company like Groupon could really attract users who want to save money.
The fact that 31.1 million users made a purchase via its platform are encouraging. The size of the user base is impressive, and offers the company hopes that it can harness the scale and drive up the purchase-per-user metric.
Another positive factor that could drive up GRPN stock is its connection with Chinese Internet powerhouse Alibaba Group Holding Ltd (NYSE:BABA), which acquired a 5.6% stake in Groupon in February 2016.
There has been speculation that Alibaba may look to buy Groupon but, so far, the idea has been quashed. But it would make some sense, as it would allow Alibaba an established entry point into the U.S. market, along with adding a large user base for Alibaba products and services. Another option would be adding the Groupon platform to Alibaba and, in the process, bring more countries into the Groupon space.
At the end of the day, the stars appear to be aligning for Groupon but, ultimately, the company will need some good fortune along the way.