Groupon Inc (NASDAQ:GRPN) posted strong holiday sales, following which Tom Forte of Brean Capital took a more bullish stance on the stock. On Tuesday, Groupon said it posted record sales in North America on Black Friday and Cyber Monday, and the two days account for the largest sales days in the company’s history.
Groupon rated as a Buy
Forte in a note said they are impressed with the strong sales, as “we believe its multitude of efforts to improve margin that were outlined at its November 2014 analyst day suggest the strong sales may be coupled with a decent margin.”
According to the analyst, in the past, whenever Groupon posted strong revenue, there was substantial pressure on margins, but this time it is not the case. Forte added that the company’s strategy of offering more items helped, as it increased the chances of customers finding something of their interest. This strategy of Groupon is “very encouraging,” according to the analyst, as it pushes users to “pull” the deals of their interest from the site. In the old strategy, the company used to push offers to consumers via email.
Brean Capital has a Buy rating on Groupon with a price target of $10. The analyst adds that record sales underline his view that more and more users are coming to the company’s site to buy deals across multiple categories.
Mobile app a big contributor
The online retailer stated that sales have increased 25% from the year-ago period, inclusive of a high volume of promo code redemptions for premium brands. With an increasing shift toward online shopping, online retailers are getting a larger chunk of sales during the holiday season. Groupon enjoys a significant presence in the online retail space across the world, which is benefiting it.
Also Groupon’s mobile app has played a significant part in pushing sales with an increasing number of users turning to their mobile devices for shopping, order placement and coupon redemption. The company’s business model depends on discounts and deals to increase sales.
Groupon saw strong growth in the last reported quarter, as around 50% of the total transactions were done through mobile devices with more than 100 million people downloading the Groupon app. At present, the company is expecting the number of smartphone users to surge five times over the next five years, which will push its sales further.