Groupon Shares Decline 25.2% YTD: Should You Buy the Dip Right Now?

Groupon, Inc. GRPN has seen its stock decline 25.2% year to date (YTD) against the Zacks Internet-Commerce industry's growth of 22.9%, the broader retail sector's return of 19.4% and the S&P 500 index's rally of 20%.

GRPN, which has emerged as a two-sided global marketplace company, has been suffering from its weakening momentum in the international market. Unexpected site stability issues related to its cloud migration project have also been heavily affecting the company's performance.

Groupon's business model makes it heavily dependent on daily deals, which is a major headwind. Since most of the offerings are consumer discretionary products, demand is heavily dependent on macroeconomic conditions. Given this, the ongoing market uncertainties, persistent inflation, looming recessionary fears, changing consumer demand and spending patterns are dampening the company's near-term prospects.

Year-to-Date Price Performance

Image Source: Zacks Investment Research

GRPN's bearish guidance is a negative. For 2024, the company expects revenues between $495 million and $515 million, indicating a year-over-year change between (4%) and 0%. The Zacks Consensus Estimates for 2024 revenues is pegged at $514.51 million, implying a year-over-year decline of 0.1%.

The company operates in a highly competitive market, wherein it faces significant competition from the likes of Yelp YELP, Rakuten, Travelzoo TZOO and Wowcher.

Groupon's solid momentum in its marketplace platform and strength in its e-commerce business model are major positives. Its large-scale global operations and growing relationship with third-party merchants reflect the company's upside potential, which bodes well for its long-term prospects.

Given the YTD dip in GRPN shares, investors are questioning whether this is the right time to buy the stock. Let us explore this in more detail.

E-commerce Strategies to Drive GRPN's Prospects

Groupon, through its e-commerce platform, offers numerous deals that can be accessed by users anywhere at any time.

GRPN's strategy to build a trusted marketplace, wherein customers purchase local services and experiences, is a major positive. For this, the company's growing efforts to build long-term relationships with local merchants to strengthen its inventory selection remain noteworthy.

It strives to deliver enhanced customer experience through inventory curation and improved convenience in order to boost purchase frequency on its platform.

To strengthen the platform, the company is lifting restrictions on its deeply discounted deals and is enabling customers to purchase such deals more than once to improve the frequency and drive growth in billings.

Growing momentum across the North America region has been driving growth in the company's Local segment, which contributes the most to GRPN's total revenues and remains crucial for its e-commerce business. In second-quarter 2024, Local revenues were $114.1 million (92% of total revenues), driven by North America Local revenues, which grew 7.3% year over year.

Groupon's long-term prospects rest upon its ability to offer more innovative products and build a broader Local e-commerce platform. 

The company's strengthening supply drivers for North America Local are tailwinds. Groupon is witnessing growing traction among large enterprise merchants, thanks to expanding
relationships with existing partners, and the addition of brands to the platform.

GRPN's initiatives to remove lower-quality deals from its site that do not align with the brand promise are a plus. Groupon also made substantial progress in curating its deals, with an enhanced presentation, improved deal copy and better images.

Solid demand for family-friendly activities, ranging from trampoline parks and bowling alleys to amusement parks and water parks, is another positive. The company expects to see continued growth in these areas in the days ahead.

Growing momentum in Groupon's latest initiative called Flash Sale, which was tested first in first-quarter 2024 with one enterprise merchant, is noteworthy. The Flash Sale concept boosted its performance and, hence, the company expanded this program in second-quarter 2024, running over a dozen flash sales with existing merchants to drive performance and boost engagement on its site. Although the initiative is fresh and new, it reflects the company's potential to expand its business by developing products to cross-sell and up-sell into its supply base.

Groupon's AI initiative is a major plus. AI integration has enabled it to improve the copywriting of its deals and deal creation process. It leverages AI on projects in product and engineering to improve deal recommendation and quality assurance. Improvements in enterprise sales organization and process changes, combined with value proposition changes, continue to contribute to growth in its enterprise accounts.

Upward Earnings Trend Paints Bright Picture for GRPN

Investors are turning bullish about Groupon's upside potential, which is reflected in the upward revisions in earnings estimates.

For 2024, the Zacks Consensus Estimate for earnings is pegged at 47 cents per share, whereas the company reported a 2023 loss of 52 cents. The estimate has been revised upward by 56.7% over the past 60 days.

Image Source: Zacks Investment Research

Attractive Valuation: A Silver Lining for GRPN

Groupon is currently trading at a discount with a forward 12-month Price/Sales of 0.7X compared with the industry's 1.72X and lower than the median of 0.84X. This indicates an excellent opportunity for investors.

GRPN also has a Value Score of B, which is hard to ignore.

Image Source: Zacks Investment Research

Conclusion

Despite near-term hurdles, Groupon's strong marketplace, robust e-commerce business model, growing merchants base and solid supply drivers present a solid investment opportunity for growth-seeking investors.

Its attractive valuation and Growth Score of A make a compelling case for buying the GRPN stock at its current levels.

Groupon sports a Zacks Rank #1 (Strong Buy) at present.

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