Groupon Inc (NASDAQ:GRPN) shares rose as much as 14 percent after analysts at Deutsche Bank gave the company a big upgrade. Today’s rise took the stock up to the highest level it has been it in almost a year.
Analysts Ross Sandler and Lloyd Walmsley said they had become increasingly optimistic about the company after the news about its falling expenses and the new way it has begun to market itself. They increased their price target for the stock from $6 to $10 per share and raised their rating from hold to buy.
A Shift In Strategy At Groupon
Groupon Inc (NASDAQ:GRPN) created the daily deals business by offering deep discounts on various local services when it first began. The deals were delivered to registered users’ email addresses daily. Gradually the company began to realize that there were some serious problems with the way it was doing business and decided to change tactics.
Now the company is employing a pull technique rather than a push technique. The email model was attempting to push consumers to spend money with Groupon’s customers. However, now the company attempts to pull customers in, and Sandler and Walmsley said this new way of looking at the business is changing the game. They believe that it’s working.
Groupon’s Falling Expenses
One of the parts of Groupon Inc (NASDAQ:GRPN)’s transformation was slashing expenses, especially in the area of lead acquisitions. The company had been spending a lot of money every year simply acquiring the email addresses of prospective customers for its clients.
The analysts noted that while marketing expenses were once about 29 percent of Groupon’s billings to a little over 3.5 percent over the last nine quarters. In terms of gross profits, the company’s marketing expenses have fallen from 82 percent to 14 percent during the same time frame.
As the company’s expenses fell, it also saw its billings and gross profits rise. Billings jumped 23 percent during the first quarter of the year, while gross profits jumped 2 percent. Meanwhile the company’s expense in marketing fell by 31 percent.
Groupon Shifts To Mobile
Another area the analysts were thrilled about is the way Groupon Inc (NASDAQ:GRPN) has become strong in the mobile sphere. Deutsche Bank said Groupon Inc (NASDAQ:GRPN) is the most mobile penetrated e-commerce company it tracks. More than 40 percent of its transactions come from its mobile channel, which has seen 100 percent year over year growth.