Groupon stock forecast: will Prentice Capital reinject life back into GRPN?
10:00, 5 October 2021
Groupon was an early pioneer in the daily deals segment. The company would sell users coupons or freebies from local businesses before it expanded into becoming more of an e-commerce marketplace.
Many investors argued that the daily deal industry operated with a flawed business model from day one. Finding an acceptable balance between connecting deal hunters with businesses was a difficult proposition – in many cases, Groupon merely helped cannibalise existing sales.
A popular restaurant, for example, could end up selling $50 worth of food to loyal customers at a discounted rate of $25. However, new customers it attracted through a Groupon deal were unlikely to return and pay the full price as they merely moved on to the next deal.
There are other factors that contributed to Groupon’s downfall. These include heightened competition, a booming economy and product fatigue, among others.Taking into account a 20-1 reverse share split, the Groupon share value is currently down roughly 95% from its initial public offering (IPO) price in 2011 and 38% down year to date (YTD).
So why should investors pay attention to a company like Groupon? For starters, bargain stock hunters might think the stock is undervalued. Others are taking a closer look after Prentice Capital Management confirmed it had taken a 5.47% stake in the company.
Let’s take a look at Groupon’s troubled history, recent moves to reposition itself, and the latest Groupon stock news.
GRPN forecast: early years with a rough start
Groupon marketed itself to investors in its regulatory filing using a non-standard financial metric known as the “adjusted consolidated segment operating income”.
The problem with this metric is it did not include the company’s large costs associated with customer acquisition and marketing. Regulators forced the company to re-write its IPO prospectus to use recognised accounting terms.
The company even added a caution: “Adjusted CSOI should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a valuation metric. When evaluating our performance, you should consider Adjusted CSOI alongside other financial performance measures.”
Fast forward to September 2011 and Groupon said in a new regulatory filing its previously announced sales were incorrect. Citing an “error”, Groupon revised its first half of 2011 revenue from $1.5bn to $688m.
Shares in Groupon traded on the Nasdaq exchange for the first time on 4 November 2011. At the time, the company was looking to raise $700m which earned it the status as the second-largest US tech IPO ever after Google.
The Groupon stock price history didn’t take long to deteriorate. Just three weeks after its IPO, shares fell by a double-digit percentage point in three consecutive days to fall below its IPO opening price of $28 per share.
A year later, Groupon’s stock nearly matched that of Zynga for the unfortunate title of the worst-performing stock with a market cap of at least $1bn in the entire market.
However, 2013 played out in a different way. Investors with faith in the company who had created a bullish GRPN stock prediction were rewarded as shares rebounded more than 100% that year. The company shifted its focus away from daily deals and vouchers. Instead, new initiatives such as Groupon Reserve consisted of restaurant bookings. A $260m acquisition of South Korea’s Ticket Monster gave the company new geographic exposure.
A year later in 2014, Groupon focused on adding discounted products to its platform in a further attempt to diversify away from daily deals. A year later, management continued to work on its diversification strategy, including focusing on higher-margin categories and exiting poorly performing international markets.
However, it seemed that no matter what management attempted, the GRPN stock price target among investors seemed to drift lower as each year passed.
GRPN: the modern years
The unfortunate reality for Groupon shares is that the company failed to gain any traction in the years that followed. By management’s own admission, its performance had fallen short of expectations.
In the company’s Q4 and full-year 2019 results, ex-Groupon CEO Rich Williams said in its February 2020 earnings release: “We did not deliver the financial performance we expected during the fourth quarter and we recognise we must move swiftly to put Groupon back on a growth trajectory.”
Management detailed its vision for a “stronger Groupon” to emerge. This would consist of a company with “broader inventory, modernised products, a refreshed brand, new ways for merchants to partner with us to grow and a leaner organisation. Success in these areas will be key to achieving our goal of reigniting billings growth.”
Investors weren’t in the least bit excited as Groupon’s stock sank more than 40% immediately following its report. This marked the worst single-day performance for the company since its IPO debut.
Within a few short weeks, the full impact of the Covid-19 pandemic was clear to the world. Gone, at least temporarily, was nearly all demand for consumers to support local merchants and take advantage of experiences.
Any remaining optimism for a bullish Groupon stock forecast 2021-2025 took a turn for the worst when the company announced a 1-for-20 reverse stock split. A reverse stock split was aimed to consolidate the number of existing shares into fewer but proportionately more valuable shares. Failure to do so would result in the stock being delisted by Nasdaq for trading below $1 per share for a prolonged period of time.
The split meant that Groupon stock was valued at just above $20 per share. At the time of writing (early October 2021), Groupon stock was trading at around $23.
The stock’s support can be attributed to equity investment firm Prentice Capital Management that confirmed a 5.47% passive stake in Groupon. Typically, although far from always the case, a large investment from an entity like Prentice signals a certain degree of confidence in where the company is headed.
While this is reason enough to answer why Groupon stock price is rising, it isn’t reason enough by itself to buy the stock.
Groupon stock forecast: company’s guidance and latest results
On its latest financial earnings release, Groupon shared “solid financial results in the second quarter , including the highest level of quarterly global local billings since the pandemic began”.
For the second quarter of 2021, Groupon’s revenue was $266m, down 33% compared with the same period in 2020. However the company’s gross profit was $193.9m, up $56m compared with the same period in 2020.
The company has managed to decrease its net loss from continuing operations, which accounted for $3.1m in the second quarter 2021 compared with a net loss of $73.1m in the second quarter 2020.
Groupon adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of $41m in the second quarter 2021, compared with adjusted EBITDA of $1.3m in the second quarter 2020.
Providing its guidance for the full-year results for 2021, the company updated its outlook for the adjusted EBITDA, expecting it to range from $115m to $125m, and continued to expect to deliver $950m to $990m of revenue.
Groupon stock forecast: analyst sentiment
Looking at the stock chart shows little reason to support a long position based on the technical analysis.
The clear selling momentum and the stock’s inability to find new buyers near $25 per share should make investors cautious. On the other hand, the stock may have found some support near $21 per share and this would represent a good entry point for investors that are bullish on the long-term outlook.
Some investors believe Groupon’s 95% loss since its IPO leaves little room for a further fall.
A total of six analysts are covering Groupon stock, according to data from MarketBeat. At the time of writing (4 October 2021), four analysts share a hold rating, another one gives it a buy recommendation, and one considers the stock a sell.
Still, the consensus 12-month GRPN stock forecast from these analysts is rather bullish and currently stands at $42.17 per share, which indicates an upside potential of 78% based on Groupon’s Friday closing price of $23.56 a share.
Some of the analysts covering the Groupon share price forecast have recently updated their price targets for the stock. On 9 August 2021, Trevor Young from Barclays lowered the price target for the stock from $35.00 to $30.00. Ygal Arounian from Wedbush also decreased the price target for Groupon from $54.00 to $33.00.
Analysts surveyed by TipRanks do not share a strongly bullish or bearish Groupon stock price forecast, as of 4 October 2021. The stock got a ‘moderate sell’ smart score rating based on investor sentiment and technical analysis data.
Although nobody can foretell with 100% accuracy if the price of a stock will rise in the future, an algorithm-based Groupon stock forecast for 2021-2026 made by Wallet Investor forecasts the stock price could almost double to around $42 by this time next year and reach $120 within five years.
Note that these consensus estimates and recommendations, provided by analysts who track the evolution of the company’s fundamentals over time, should never be taken as investment advice. They could equally be wrong.
Do your own research and always remember your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose.
Edited by Alexandra Pankratyeva
Is Groupon stock a good investment?
Shares in Groupon are down roughly 95% since its public debut and the company was left with no other option than to initiate a 1-for-20 reverse stock split in 2020 so it could satisfy Nasdaq’s $1 per share minimum requirement.
Most recently, Prentice Capital Management bought a 5.47% stake in Groupon stock, giving some investors reason to believe the stock has upside potential.
Will GRPN stock go up?
There is no guarantee that GRPN stock will go up. The management will have to reposition the company to adapt in a post-Covid-19 reality and shed its past trading history. We encourage traders to perform their own due diligence before making any trading decision.
Where to buy Groupon shares online?
Instead of buying Groupon shares outright, investors can trade it with contracts for difference at Capital.com. CFD traders can take advantage of Groupon share price fluctuations without buying the asset itself. However, remember trading is risky and make sure you understand how CFDs work with our comprehensive guide.
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