By John Pletz, Crain News Service
CHICAGO (June 18, 2013) — Groupon Inc.'s stock got a turbo boost June 14 from an analyst upgrade and takeover speculation, sending the stock up as much as 17 percent.
The stock topped $8 for the first time in nearly a year before settling back to about $7.90 in mid-day trading. It's still less than half Groupon's $20 IPO price in late 2011.
Analyst Ross Sandler of New York-based Deutsche Bank upgraded Groupon to a "buy," betting that the company is showing signs that it can make the transition beyond the constraints of email and daily deals.
And he said Groupon, which has more than 200 million customers and is the third-largest e-commerce company behind Amazon.com and eBay, could be a takeover target.
"This scale and independence makes Groupon an interesting acquisition candidate for larger entities looking for a global presence in e-commerce, especially during the current time period where the growth and sustainability of the model is still controversial among the investment community.
"Amazon has doubled down on its investment in LivingSocial; hence, if it were to ever acquire the company outright, it could further increase the scarcity value of Groupon for larger ecosystems looking at local commerce as an important channel," he wrote. "We think there are several companies that would benefit from owning Groupon's massive distribution platform."
It's the same reason that Tom Powell, a Chicago orthodontist who attended the annual meeting of Groupon shareholders June 13 in downtown Chicago, bought the stock last year at about $6 per share. "With that brand, you figure somebody else will want it."
Groupon declined to comment.
At the meeting, Groupon executives said that more than 60 percent of merchants signing up for deals in March agreed to participate in "Dealbank," a searchable marketplace of ongoing deals. That reduces Groupon's reliance on emailing deals to get customers to buy and increases the number of deals that can be offered at any given time from a handful to thousands.
And it answers another key question critics have raised about the business: how to get merchants to come back to Groupon on a regular basis. Many worried that companies wouldn't want to offer the big discounts that are Groupon's hallmark more than once or twice a year. But Groupon has been shifting to a model that allows merchants more options to better control how often and how many discounts they offer, rather than just the one-time firehose deals that would send thousands of customers to a business.
Groupon also has been promoting itself as a player in mobile commerce, with nearly half its transactions in North America coming from mobile phones recently.
Mr. Sandler wrote that Groupon "should be in a position to grow billings 20-plus percent on the transition to a 'pull' strategy, marked by further traction in mobile and (search)." He argues that Groupon could produce 15 percent higher pro-forma earnings in 2015 than the market is forecasting.
He's also bullish on the stock, writing: "GRPN is no longer just an email machine, it's a mobile-pull and email hybrid, which is why we strongly believe that if and when Groupon decides to re-accelerate its marketing push, namely using (search-engine marketing), the growth rate of billings and gross profit should accelerate significantly."
This report originally appeared in Crain's Chicago Business magazine, a sister publication of Tire Business.