Evecore Raises Groupon Inc (GRPN) PT To $5

Evecore Raises Groupon Inc (GRPN) PT To $5
By GrouponRUS (Own work) [CC BY-SA 4.0], via Wikimedia Commons

On Wednesday, Sterne Agree analysts upgraded its rating on Groupon Inc (NASDAQ:GRPN), sending the stock soaring five percent. Evercore Partners Inc. (NYSE:EVR) also came out with a report that included a higher target price and a fourth quarter earnings preview for the company.

Evecore Raises Groupon Inc (GRPN) PT To $5

One day later, Groupon Inc (NASDAQ:GRPN)’s stock is trading at $5.74, up 2.87 percent year-to-date, the company’s shares are up 17.94 percent.

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The report, “Encouraging Demand Signs; 4Q Preview” included the following highlights.

Analysts removed Groupon from its conviction sell list and raised its target price from $3 to $5. This came from stronger than expected third-party checks this quarter, helped by traction in deal search (its new “Local Marketplace” offering), and signs of improving mobile engagement. These checks include COMSCORE, Inc. (NASDAQ:SCOR), Yipit (deal aggregator) and public disclosures on LivingSocial.

Success from Local Marketplace: It’s deals have grown to 12% of total billings in North America, up from nothing a quarter ago, according to Yipit. This is helping to fuel a 25% q/q improvement in North America billings, well in excess of the previous 2% estimate vs. +1% q/q actual growth in 3Q12. Note: Local Marketplace had been rolled out in November and enables users to search, browse and buy from Groupon’s broader deal inventory, moving Groupon Inc (NASDAQ:GRPN) from “demand generation” towards “demand fulfillment.” Analysts believe this is a critical evolution if Groupon is to attain a competitive barrier for its overall business.

Time in mobile devices increased: Groupon’s U.S. time spent on mobile devices increased 36% q/q, an acceleration compared to 3Q’s 25%growth, with the bulk of Groupon’s time spent (~75%) driven by mobile. In addition, LivingSocial, Groupon’s closest competitor, grew 32% q/q in 4Q12, according to Amazon.com, Inc. (NASDAQ:AMZN)’s 10K, despite continued margin issues.

Maintain Underweight Rating: In spite of encouraging quarterly checks, analysts believe it is prudent to keep their rating at “Underweight” on Groupon Inc (NASDAQ:GRPN) until they see at least a quarter or two of the suspected stabilization materializing in the actual results. Still, analysts view it as very promising that Groupon has managed to show traction in local “deal search,” which, if successful, stands to deliver engagement, revenues, and potential longer-term competitive advantage. Groupon trades at 10x their  ’13 EBITDA (x-SBE) and 31x earnings estimates, which analysts view as a fair multiple considering the level of overall business uncertainty that exists.

Estimates increase: For 2013, billings and revenues increase by 16% to $5.9 billion and $2.77 billion, respectively. CSOI increases from 1.9% to 6.7% of revenues on a greater proportion of billings coming from higher-margin Daily Deals. For 4Q12, revenues increase 6% to $640, which partially flows through to $41mm in CSOI, the midpoint of the $30-$50 guidance range, despite last quarter’s guidance miss.

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