Groupon Inc (NASDAQ:GRPN) is not the darling of the tech growth market that it was in the immediate wake of its IPO, but the company still holds the attention of more than a few investors. The company that came to embody the Web 2.0 bubble is trying to turn itself into a money-making enterprise, and analysts with Morgan Stanley reckon the company has a god chance of doing that in 2014.
According to Stephen Shin and other analysts working on Groupon Inc (NASDAQ:GRPN) at Morgan Stanley, the company’s turnaround effort “has been uneven and likely will be uneven for a few more quarters.” Despite the warnings of inconsistency, the analysts reckon that the company is Overweight and justifies a price target of $13. On Monday morning shares in Groupon Inc (NASDAQ:GRPN) opened at $7.02.
Groupon turnaround holds promise for investors
It seems difficult to build a case for an increase of 85% in the value of Groupon Inc (NASDAQ:GRPN) over the next twelve months or so. The company’s stock has lost more than 40% of its value so far in 2013, with most of the decline in the immediate wake of the company’s last earnings report. Shares in the firm haven’t hit $13 since April of 2012, though its 52-week high stands close at $12.76.
Mr. Shin seems pretty confident about the company’s short to medium term future, however. The company is betting on local commerce to get it out of its current financial troubles, and the analyst gives good reason for the company’s pre-eminence in that area, and forecasts ways the firm will be able to pull in cash in the coming months and years.
According to Mr. Shin Groupon Inc (NASDAQ:GRPN) is the leader in daily deals, and addresses a potentially massive local commerce market. The firm’s offerings are strengthened by its size and the strength of its brands. It’s now difficult for another company to get in on the Groupon market.
The company will, according to Morgan Stanley, add value by rolling out targeted deals that should help to increase conversion rates, and its strong presence on mobile is likely to continue growing and strengthening. Unfortunately for investors looking to get rich off of the company in the short term, there are clear problems.
Betting on Groupon earnings is risky
Despite the clear potential that Stephen Shin sees at Groupon Inc (NASDAQ:GRPN), the company’s earnings are not likely to show consistent growth through the year. Today’s report forecasts risk to headline expectations on the company’s second quarter report, which is due on Tuesday afternoon. Groupon earnigns will grow in 2014, according to Mr. Shin, but the company’s performance from quarter to quarter is likely to be much more volatile.
Groupon Inc (NASDAQ:GRPN) is a weak business right now, and the company is trading at a low revenue multiple. If local deals are set to become a massive business in the years ahead, there are risks to the company’s chances of thriving in that business. Groupon is losing money in a risky market, all of the positive dynamics in the world cannot make that simple fact go away.