Groupon’s (NASDAQ:GRPN) surprising top-and-bottom-line beats for Q1 showed that a genuine turnaround is on the cards for the e-commerce marketplace connector. It marked the first time since 2016 that revenue grew on a consolidated basis. However, CEO Dusan Senkypl gave guidance for a slowdown in Q2 due to technology-related challenges but anticipates a return to upward growth in the second half.
Shares jumped 62% in the days immediately following the earnings report, though they have pulled back 18% since. The stock trades at a deep discount to industry peers, suggesting this may be a prime opportunity to take advantage before the stock continues its upward momentum and reaches higher levels.
Groupon’s Tech Integration Challenges
Groupon is a marketplace that connects consumers with businesses. It operates in two divisions, North America and International, and provides services on behalf of various third-party merchants. Customers engage with Groupon through its mobile applications and websites.
The company has been building a newly improved website, updating its back-end tech stack. However, it has experienced some setbacks with its launch due to issues with its anti-fraud software. This new third-party software was found to be blocking legitimate orders, a situation that persisted at least until early May. This situation is expected to result in a significant deceleration for Q2, with an anticipated revenue decline of -10% to -5%. It is a disappointing misstep for a company that had recently returned to growth.
The company was forced to scale back the new site’s implementation from 50% of web traffic in North America to just 3%, a situation IT plans to address by ramping back up throughout the coming quarter. Its aim is to have the front end fully operational across all regions in time for the Q4 holiday season.
Groupon’s Recent Financial Results & Outlook
Groupon’s first-quarter results for 2024 beat analysts’ predictions. Revenue of $123.1 million exceeded analysts’ estimates by 5.50% and marked a 1% increase from the previous year. Local revenue showed a promising rise, growing by 4% to reach $111.2 million.
Furthermore, Groupon’s strategies yield positive results as it bagged a gross profit of $110.6 million, a 6% increase compared to the prior year. However, the company also saw an increased marketing expense of 26% of the gross profit. On a positive note, the Selling, General & Administrative (SG&A) costs declined due to decreased payroll expenses, and the net loss was noticeably lower than the prior year. Also, the company moved from a negative Adjusted EBITDA in the previous year to a positive $19.5 million. Finally, earnings per share (EPS) reached $0.06, above consensus expectations of -$0.05.
Management has issued guidance for Q2 and 2024. Revenue projections for the quarter range from $116 million to $122 million, with $12 million to $17 million in adjusted EBITDA, and Free Cash Flow is projected to be negative. Projections for the year include revenue of $489 million to $515 million, adjusted EBITDA between $80 million and $100 million, and Free Cash Flow is projected to transition from negative to positive.
What Is the Price Target for GRPN Stock?
The stock has been highly volatile, with a beta of 2.18. However, the recent overall trend has been upward, with the shares climbing 112% over the past year. The stock trades near the middle of its 52-week price range of $6.06 – $19.56 and shows negative price momentum, trading below its 20-day (14.80) and 50-day (14.50) moving averages. Yet, the stock looks relatively undervalued with a P/S ratio of 0.9x compared favorably to the Internet Content & Information industry average of 6.8x.
Analysts following the company have mostly taken an optimistic stance on the stock. For instance, Northland Capital Markets recently initiated coverage of Groupon with an Outperform rating and $22 price target, noting evidence that the company “is in the early innings of a successful turnaround” while highlighting future growth levers, such as a new app/website and cost-cutting efforts.
Groupon is rated a Moderate Buy based on the recommendations and price targets assigned by three analysts. The average price target for GRPN stock is $18.00, representing a potential upside of 23.46% from current levels.
GRPN in Final Analysis
Groupon has delivered a convincing beat of Q1 estimates in a remarkable turnaround, buoying investor hopes for a prosperous future. Although hit by recent technology-related setbacks, management remains optimistic about sustained growth in the latter half of the year. Despite the stock pulling back 18%, it continues to trade at a heavy discount to industry peers, which could signify an intriguing buying opportunity for astute investors.
