Groupon Inc (GRPN): Headwind Is Only Temporary

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Groupon Inc (NASDAQ:GRPN) has been struggling since it filed for its initial public offering, as investors turn bearish. However, Deutsche Bank analysts believe the company is in the midst of a successful turnaround. In fact, they feel a bit better about the company’s mixed results in the last quarter after meeting with management.

Groupon faces headwinds

Analyst Ross Sandler said one of the reasons Groupon Inc (NASDAQ:GRPN) has been struggling has been its shift in inventory from deals which are urgently expiring to those which are perpetually in the market. They expect this transition to continue for “a couple more quarters,” but they believe that the current quarter is speeding up again, in spite of other reports suggesting differently because of data tracking. They think the “bear case that everything is falling apart” just doesn’t look valid when examining the company’s strong performance in Europe and the Middle East during the fourth quarter.

They note that Groupon Inc (NASDAQ:GRPN)’s business in Europe and the Middle East is the same as it is in North America, except that it is more fragmented across geographies. Also, they note that Groupon’s Local segment is accelerating because of massive reductions in marketing and “similar take-rate.” They believe that these points alone disprove the bear case for Groupon.

What Groupon will focus on moving forward

The Deutsche Bank team points out that consensus estimates show most are expecting Groupon Inc (NASDAQ:GRPN) to see 0% growth in organic billings this year, and they believe that will prove conservative, especially because management had a “cautiously optimistic tone” regarding the current quarter. They believe both North America and Europe and the Middle East will accelerate organic billings growth this year. However, they saw that the rest of the world continues to be in turnaround mode.

They believe new products like Genome will increase merchant satisfaction with Groupon Inc (NASDAQ:GRPN) and note that the company already has higher merchant satisfaction than its peers. They believe that since last year was when Groupon shifted its base from email to mobile, this year will be when the company looks to expand its base.

The analysts also note that core enthusiast customers are still going strong, as same-day redemptions, most f which are mobile, have risen 100% year over year. They see a buying opportunity in the dip in Groupon Inc (NASDAQ:GRPN) shares because investors have been overly obsessed with North American Local trends. They continue to rate Groupon as a Buy with a $12 per share price target.

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