GRPN Stock: This Could Send Groupon Inc Stock Soaring
xGroupon Inc (NASDAQ:GRPN) stock has been pummeled by investors since its initial public offering in 2011, which was the high point of the daily deals market. Since then, the market has dried up, sending GRPN stock crashing about 83% on disappointing financial performance and uncertain future prospects.
But GRPN seems to have some life left in it as of late, as things might actually be starting to turn around.
In February, Groupon announced stronger-than-expected earnings that had investors jubilant. Revenue for the fourth quarter increased nine percent over the previous year on a constant currency basis, up to $917.2 million. (Source: “Groupon Announces Fourth Quarter and Fiscal Year 2015 Results,” Groupon Inc, February 11, 2016.) Adjusted earnings came in at $0.04, which far exceeded the breakeven proposition investors were expecting. GRPN stock jumped as much as 20% in afterhours trading.
CEO Rich Williams wrote in the earnings release that the company was going to jumpstart performance by significantly increasing marketing expenditures, streamlining international operations, and weaning off low-margin business segments. Williams also noted that margins in 2016 are expected to rise.
About a week later, shares of Groupon skyrocketed again on news that Chinese e-commerce giant, Alibaba Group Holding Ltd (NYSE:BABA), purchased 33 million shares for a 5.6% stake in the company. Groupon shares surged 40% the morning after the announcement.
Just when it seemed GRPN stock was done for, it now finds itself up a striking 96% since the company reported earnings in February.
And now GRPN stock is getting yet another boost. This time, the daily deal site announced on Monday that it has landed a $250-million investment from Atairos Management, an investment firm formed by Comcast Corporation (NASDAQ:CMCSA). (Source: “Groupon Gets $250 Million Investment,” The Wall Street Journal, April 4, 2016.)
Groupon will be taking that investment and using it to repurchase shares. The company announced that it would be boosting its existing share buyback by $200 million.
GRPN stock soared more than nine percent on the day, but investors were most likely not upbeat on the capital injection itself. Despite trying to find its footing, Groupon has about $853 million in cash on its balance sheet, so it certainly didn’t need the money.
Investors likely cheered the fact that this is now the second time this year that Groupon has attracted interest from companies with lots of capital.
Comcast’s former chief financial officer Michael Angelakis founded Atairos earlier this year with more than $4.0 billion in committed capital from Comcast. (Source: Ibid.) As part of Atairos’ investment in Groupon, Angelakis will also join the company’s board of directors.
So what does the deal mean for Groupon?
Well, the investment from Atarios includes a clause that Comcast will work with Groupon on strategic partnership opportunities. (Source: “Selling Groupon’s Latest Deal,” The Wall Street Journal, April 4, 2016.)
“The potential in combining Groupon’s local expertise with Comcast’s vast subscriber and advertiser network is something we look forward to closely exploring together,” said Neil Smit, chief executive officer of Comcast’s cable arm. (Source: “Groupon Gets $250 Million Investment,” The Wall Street Journal, April 4, 2016.)
The Bottom Line on GRPN Stock
It may not seem obvious at first, but there are natural synergies between the two companies. Groupon has a growing base of local merchants that go hand-in-hand with Comcast’s pool of advertisers through NBCUniversal. Each company also has a base of millions of customers.
From Groupon’s perspective, the deal opens up a new market to grow its active customers, which rose eight percent over the last year in the U.S. and three percent on a global scale to 49 million.
And with strategic opportunities on the horizon with Comcast, GRPN stock may be bound to benefit.
