Groupon Is A Turnaround Story Worth Watching

Although there is “some risk” to estimates for first quarter and second quarter of 2017, Groupon Inc GRPN is “a turnaround story that is worth paying attention to,” given that its operations and country footprint are “getting closer to the go-forward strategy,” Citi’s Mark Kelley said in a report. He initiated coverage of the company with a Neutral rating and a price target of $5.

Turnaround Will Work

Kelley mentioned there seems to be several positive trends to Groupon’s turnaround. These include:

• Properly realigning the business to focus only on 15 core countries across North America, Europe, the Middle East and Africa and rest of the world, which is down from 47 in 2015.
• Streamlining operations and investing for increased customer acquisition.

“We’re also positive on some of the product changes that are on the horizon, which we believe are likely to increase purchase frequency and therefore the LTV [lifetime value] of each customer (extended expired Groupons, Card-Linked Offers, etc.),” the analyst commented.

Near Term Could Be Bumpy

Management had suggested that the 1Q 2017 traffic and consumer patterns could continue to be inconsistent. Moreover, the estimates may be impacted by shifts in geographies and product lines.

Kelley pointed out, however, that Groupon had $195 million remaining in its shares buyback authorization at the end of CY16 and could repurchase more than 48 million shares, lending some support to shares.

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