Morgan Stanley (NYSE:MS) reiterates its earlier equal-weight rating on Groupon Inc (NASDAQ:GRPN), owing to the company’s sustained growth momentum in the U.S. market.
In its research report published after the analysts’ meeting with CEO Eric Lefkofsky and CFO Jason Child, Morgan Stanley analysts conclude that Groupon Inc (NASDAQ:GRPN) is able to sustain its North American business while it lacks visibility in its international business.
Scott Devitt and Stephen Shin commented on the positive tone from management, thanks to their drive towards pull from push showing promise.
The analysts also noted that European operations started stabilizing after correcting operational issues. However, enlarging presence in other markets remains a challenge.
Morgan Stanley (NYSE:MS) analysts believe that Groupon Inc (NASDAQ:GRPN) will derive huge competitive advantages through about 40 million active customers, coupled with its disruptive business model. The company also derives considerable advantage through its large sales force, offering high barriers to scale.
Groupon Inc (NASDAQ:GRPN) has key value drivers through delivering merchant return on investment and ability to deliver heavily discounted products and services to its target consumers.
The analysts feel Groupon Inc (NASDAQ:GRPN)’s flexibility will extend to new verticals, and that increasing ARPU through multiple business channels would act as potential catalysts.
However, the analysts feel the deal-of-the-day website faces potential risk through competition from startups and cannibalization of local deals with lower margin direct revenue.
The analysts also understand from management’s discussion that Groupon Inc (NASDAQ:GRPN)’s proposed tweaking of delivery times would facilitate two-day shipping on goods orders sold 1P.
Groupon Inc (NASDAQ:GRPN)’s North America business shows promising signs, with the improvement reflected in better execution of deals. More importantly, mobile platforms improved from 20 percent two years ago to the current 45 percent, as the company moves away from push to pull strategy.
Morgan Stanley analysts also observed that Groupon Inc (NASDAQ:GRPN) management continues to be optimistic about the promise of the deal bank that allows consumers to pull deals when they need it.
Pointing to the challenges faced by Groupon Inc (NASDAQ:GRPN) on the international front, the analysts note the number of active clients fell sequentially last year, which is evident from the following graph:
Groupon Inc’s Business Showing Improvement
Scott Devitt and Stephen Shin also observe that Groupon Inc (NASDAQ:GRPN)’s business is showing improvement in Europe. However, the business from other areas like EMEA is still struggling. The analysts gathered that Latin America and Asia Pacific would be a focus area in 2013 and 2014.
The analysts note Groupon Inc (NASDAQ:GRPN) is planning to embark on its ambitious single technological platform to facilitate easy management of its business. However the analysts expect the adoption would take much longer than anticipated due to its repercussions on an international scale.
Morgan Stanley analysts raised their DCF-driven base case fair value of Groupon Inc (NASDAQ:GRPN) to $9.