Groupon Inc (NASDAQ:GRPN)’s rating and price target were raised by Bank of America analysts in a report on Monday. Analyst Paul Bieber believes that the progress made by the company highlights its turnaround and feels that “the downward estimate revision cycle could be ending.”
Positive moving forward for Groupon
Some of the positives noted by Bieber in the report are: a large and growing customer base; declining headwinds for emails, which should support local billings growth; stable cohort spending as suggested by the new disclosures; and easy local billings comps, along with chances of accelerating in the fourth quarter. The analyst believes that the growth acceleration in the last few quarters for Ticket Monster has enhanced its value.
The Bank of America analyst also believes that the company’s strategic asset value, along with its ability to up growth rates will help Groupon to bounce back. Year to date, Groupon is down 36% compared to a 14% gain for the NASDAQ, however, Bieber expects sentiment to turn more positive in 2015. Bank of America has assigned a Buy rating to the stock and raised its price target from $8 to $9.50.
Low competitive barriers
One of the prime concerns for Groupon is a lack of competitive barriers. Many tech giants are already operating in the same segment, such as Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG). In June 2011, Amazon unveiled Amazon Local, which directly competes with Groupon. Also Google launched Google Offers in 2011, however, it was closed earlier this year, possibly to integrate it with Google Shopping Express. Recently Twitter Inc (NYSE:TWTR) came out with a feature that closely resembles Groupon’s business model as well.
Groupon is aware of the low competitive barriers, as in the last 10-Q filing, the company informed investors that a substantial number of companies that “attempt to replicate our business model have emerged around the world,” and it will have to compete with big “Internet and technology based businesses.”
Groupon is in the midst of a transition from the “push model” to more of an e-commerce platform. With an improving brand image, the company will be able to lower its dependence on emails. Groupon expects to attain double-digit growth in North America, which experts believe is achievable. In North America, the company’s user base reports high satisfaction levels. Also the strategy adopted by Groupon to help merchants and customers through merchant centers and feedback should help the company accelerate its growth.