Groupon Inc (NASDAQ:GRPN): This Tiny $5 Stock Is Poised to Explode Higher

Groupon IncThis Could Be Massive for Groupon Stock

Groupon Inc (NASDAQ:GRPN) stock had quite a ride so far in 2016. In February, it more than doubled. After it reported first-quarter earnings in April, Groupon stock plunged more than 25% in a few trading sessions. Now, it’s making a comeback again, gaining more than 32% since last Wednesday.

As you’d expect, the catalyst behind Groupon stock’s latest surge was an earnings report. In today’s stock market, it’s not uncommon for companies that are yet to be profitable to see massive swings in their stock prices upon reporting earnings. Since these companies don’t have profits yet, it’s hard to put a valuation on them. For this reason, any signs of growth or a slowdown can cause a major move in their stock prices.

Although the market seems to be having a hard time putting a price tag on Groupon, I believe there are quite a few catalysts that could create major upsides in GRPN stock in the near future.

Groupon Stock: User Growth

In today’s Internet sector, user growth is of utmost importance. On that front, Groupon is doing quite well. In the second quarter of 2016, the group-buying deal and e-commerce company added more than one million new customers—its greatest increase in more than two years. (Source: “Groupon Announces Second Quarter 2016 Results,” Groupon Inc, July 27, 2016.)

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In North America, Groupon had 27.9 million active customers at the end of the second quarter. While the number is much smaller compared to the giants in Internet and e-commerce, Groupon has something that few of these giants have—connections with customers and businesses at the local level.

You see, Groupon is not just an e-commerce company, although it does have a sizable goods business, which basically sells products form its web site. What could become a huge catalyst for Groupon is the potential in the online-to-offline (O2O) business.

O2O is when customers go from online channels to physical stores. As a company that offers online deals from local businesses, Groupon is the O2O company. In the second quarter of 2016, local billings in North America grew nine percent year-over-year.

According to Groupon’s chief executive officer, Richard Williams, the company’s goal is to become a daily habit in local commerce. (Source: “Groupon Richard Williams on Q2 2016 Results – Earnings Call Transcript,” Seeking Alpha, July 28, 2016.)

GRPN Stock: Betting on Offline Ad Campaign

To reach that goal, Groupon launched it first broad offline advertising campaign in the second quarter, as well as its first national television ad since 2011. Hopefully the campaign will expand the way customers think of the Groupon brand and the benefits of its products and services.

While it’s too early to evaluate the effectiveness of the campaign, the company said that it is pleased with the initial response. Moreover, Groupon plans to keep investing in offline channels and in television in the second half of 2016.

This campaign could set up for some handsome gains for Groupon stock investors. This is in part because across the Pacific Ocean, there is a big company that succeeded by using similar strategies.

I’m talking about Meituan-Dianping—the largest O2O company in China. The company is a combination of Groupon, Yelp, and food delivery. It has always invested heavily in offline ad campaigns in order to get local businesses and consumers signing up to its services. In its latest round of funding, Meituan-Dianping was valued at a whopping $18.0 billion. (Source: “Meituan-Dianping, China’s Largest Group Deals Site, Closes Massive $3.3B Round At $18B Valuation,” Tech Crunch, January 20, 2016.)

Note that Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) was an early investor of Meituan. It also happens that Alibaba bought a 5.6% stake in Groupon earlier this year. At that time, I wrote about what Groupon could learn from Alibaba’s success in its Meituan investment. Now, it looks like Groupon is following Meituan’s strategy.

The Bottom Line on Groupon Stock

At the end of the day, keep in mind that Groupon’s business is already showing signs of growth. Second-quarter revenue increased three percent on a constant currency basis and its net loss of $0.01 per share was narrower than Wall Street’s expectation of a $0.02 loss per share.

If the company’s offline ad campaign pays off, Groupon stock could have another round of rallying.