Groupon (NASDAQ:GRPN) has been on a remarkable journey in 2023, with its stock surging by 62% this year. However, what’s truly astonishing is its recent meteoric rise, having more than tripled in the past six months, increasing by a staggering 297%. This incredible surge has catapulted the company’s market capitalization to $417 million. But despite these extraordinary gains, it’s essential to consider whether it’s a prudent time to sell Groupon stock, especially when it’s still trading 97% below its all-time highs and has a history of eroding investor wealth over the long term.
Understanding Groupon’s Business Model
Founded in 2008, Groupon operates as an online marketplace bridging the gap between consumers and businesses. Users can access the platform via a mobile app or the company’s website, where Groupon primarily operates in three categories: local deals, goods, and travel. The company aims to boost sales by fostering lasting relationships with local merchants and enhancing the customer experience through inventory curation, leading to increased customer demand and purchase frequency.
Groupon’s revenue is generated through net commissions earned by facilitating the sale of goods or services on behalf of third-party merchants. It operates on a net basis, which means its revenue is calculated as the difference between the purchase price collected from customers and the payment made to the merchant. Additionally, the company earns fees when customers make purchases with retailers using Groupon’s digital coupons. To date, Groupon has partnered with over a million merchants, generating over $25 billion in revenue for businesses and saving consumers more than $35 billion. In a market valued at $1 trillion and with 17 million active customers globally, Groupon is a significant player, attracting approximately 80 million visitor sessions each month.
In the past 12 months, the company achieved total billings of $1.7 billion, resulting in $543 million in sales. However, due to Groupon’s exit from several international markets in recent years, its sales have declined from $2.2 billion in 2019.
Groupon’s Cost-Cutting Measures
Like many other companies, Groupon has been proactive in trimming its cost structure to navigate an uncertain economic environment. In August 2022, Groupon initiated a multi-phase cost savings program, which included reducing its employee count by 1,000 positions, significantly reducing operating expenses.
These cost-saving initiatives enabled Groupon to lower its operating expenses by 5% quarter-over-quarter to $96 million in Q2. Additionally, the company reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $15 million, a notable improvement compared to the EBITDA loss of $5 million in the same period the previous year. Moreover, Groupon ended the June quarter with a free cash outflow of $45 million, representing a 48% reduction compared to the prior-year quarter. However, the reduction in its employee base is expected to result in a 15% decline in revenue for 2023, bringing it to $511 million, with a forecasted adjusted loss per share of $2.09, compared to $2.99 in 2022.
Target Price and Analyst Views
According to a report from Seeking Alpha, Windward Management LP has significantly increased its stake in Groupon to 8.6%, making it the investment management firm’s largest holding. They have raised their total investment in the online platform by 34% in 2023, emphasizing that GRPN is undervalued and could reach $55 by the end of 2024, implying a potential upside of 300% from current levels. Windward Management expects Groupon to achieve an adjusted EBITDA of at least $200 million by 2025. If valued at 10 times EBITDA, this would put Groupon’s valuation at $2 billion within the next two years.
However, Wall Street’s sentiment towards Groupon is more cautious. Among the three analysts covering the stock, one suggests a “moderate buy,” while two recommend a “strong sell.” The average target price for GRPN stock stands at $8.33, which is 40% below the current trading price.
Conclusion
While Groupon’s recent surge in stock price is undeniably intriguing, it’s crucial to bear in mind that it remains a high-risk investment. The company faces the challenge of delivering on its ambitious goals and achieving consistent profitability. For investors seeking opportunities, there are other stocks available at more attractive valuations, offering a more favorable risk-reward profile than Groupon.
Featured Image: Freepik @ grandstockphoto
Author Faith Yakubu 
