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Groupon’s Growth May Be Sustainable

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It seems likely that Groupon will sell off part of its Asia operations

Groupon has been in the midst of a turnaround for quite some time now, and debate about whether management is successfully executing a transformation continues. Growth in North America has been the main focus of analysts who follow the company, and the debate has centered on whether it can maintain that growth.

Turning even more positive on Groupon

In a report dated Feb. 25, Sterne Agee analysts Arvind Bhatia and Brett Strauser reiterated their Buy rating and $12 per share. They met with Groupon management this week and came away with the belief that the company can sustain the recent growth in North America.

Perhaps the main reason Groupon has enjoyed such solid growth rates in the region recently is because of easy comparisons with the previous year. The Sterne Agee team thinks the North America Local segment is heading for double-digit growth.

Groupon management is confident

During the meeting, management “exuded confidence,” according to the analysts, highlighting the positive trends in North America Local and expectations of billings growth in the double digits in this segment. Of course in order to convince Wall Street that they’re on the right path, management is going to have to execute that double digit growth rate beyond the easy comparable quarters.

The Sterne Agee analysts said they think both the email part of Groupon’s business is stable and the non-email part is growing steadily. As a result, they think it’s likely that management can deliver on the expectations they have set forth.

What about expansion elsewhere?

As Groupon starts to show early signs of a successful turnaround in North America, its business is still struggling in the Europe, the Middle East and Africa region. Management thinks the region’s Local business is running about a year behind the North America Local segment.

Full year billings in the region fell 4% from 2013 to 2014, while fourth quarter billings fell 13% year over year. So if management is right about Europe, the Middle East and Africa being about a year behind North America, that would mean billings should be starting to pick up toward the end of this year. The Sterne Agee analysts suggest that the region could end up being a tailwind for Groupon as a result.

Groupon updates Ticket Monster / Asia sales

Management also gave the impression that Groupon will sell off a part of its Ticket Monster and Asia operations at some point in the near future. The company purchased Ticket Monster just about a year ago for $260 million. If Sterne Agee is right about the current valuation of the South Korean subsidiary, then it turned out to be a very wise acquisition for Groupon. They estimate that Ticket Monster, by itself, may be worth as much as $1 billion.

Investors would probably welcome a sale of Ticket Monster and / or a part of Groupon’s Asian operations. A sale would boost the company’s EBITDA and balance sheet, and the Sterne Agee analysts think it would be a catalyst for Groupon stock. Further, they suggest that Groupon’s businesses in areas where it struggles will be either sold off or partnered with another company that would put in some capital to help it grow.

As of this writing, shares of Groupon were up by 1.42% to $8.20 per share.

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