Groupon, Inc (GRPN), contrary to the short-sellers' statements, is actually a good long-term bet when it is below $10. As of December 5, GRPN is at $9.09 and, in my opinion, is a perfect bargain buy. This stock has a good potential to make another rally before December is over. The current price is below the 52-week high of $ 12.76 which it posted last September. Once the holiday sales figures are announced by the end of December, GRPN may again creep up toward $11 or $12.
Groupon's realigned business model has been amply rewarded by investors. The share has increased a healthy 87.04% since January 2. This positive market movement is a gold seal of approval of Groupon's strategic moves to diversify. The new management is making all the right steps toward a major turnaround for Groupon.
Once vilified for its failed business model, Groupon is crawling back to its former heights. Yes, GRPN is still a long way from reaching its IPO offer price of $20 and it may never reach $26 again soon. However, at the current price level it is trading now makes it a good bet for a long-term play. If industry observers are to be believed, Groupon has a good chance of turning in a profit next year. GRPN has a projected positive Forward P/E of 36.36 by December 2014. It may even beat this expectation if Groupon's new business ventures start generating more revenues too.
Why the Rally Got Derailed
Groupon was strongly on its way to $13 last September but short-sellers and nervous stockholders got cold feet. GRPN went on a downward spiral - it sank as low as $8.54 last December 2. This derailment is most likely due to the semi-lackluster third quarter 2013 results. Semi-successful numbers are often viewed with great suspicion and short-sellers had a sweet time pulling down GRPN since November.
Like many others, this article pointed out that Groupon is overpriced based on the 3rd Quarter financial performance. I beg to disagree. The report actually indicates significant improvements in several vital metrics. I say these numbers are realistic signs that the market is undervaluing GRPN.
Great Things from 3rd Quarter Report
$595.06 million Q3 2013 Gross Revenue
Guidance of $2.5 billion annual sales for 2013
24% growth in North America
12% growth in Europe, Middle East and Africa
10% year over year increase in Gross Billings
Over 40% global transactions in September were done through mobile gadgets
60 million app downloads
Groupon is first giant e-commerce site to be majority mobile-centric
All these things point out that Groupon is steadily improving its chances against the hundreds of copycat daily-deals sites. The company's early shift toward mobile e-commerce also gives it a certain edge against behemoths like eBay (EBAY) and Amazon (AMZN).
Zero Debt and Lots of Money
Harsh critics of Groupon keep on maligning the company for its failure to produce a profit despite its impressive five-year growth. Things will change around soon. The daily deals business model of Groupon was easily copied. It had to contend with thousands of copycat sites so the losses were justified. However, the rapid implementation of Groupon's mobile e-commerce platform may help it produce a tidy profit in 2014.
Not many copycat daily deals sites have the financial muscle to spend lots of cash to build a mobile e-commerce platform. Groupon has a zero debt handicap. It is well capitalized with $1.1 billion cash and cash equivalent reserves. This fact is often not taken into account when calculating the fair value of GRPN.
Debt-free momentum growth companies like Groupon make it very attractive because it is not burdened with regular debt payments. The large cash reserve it has allows it to take risks that debt-laden companies cannot afford.
More Diversity, Buy More Companies
Groupon's purchase of Ticket Monster last month shows it is willing to spend some of its cash hoard for worthwhile investments. The ironic thing about that purchase is that Ticket Monster was bought from Groupon's rival Living Social. The deal gives Living Social $160 million worth of Groupon stock.
Nevertheless, Ticket Monster has a strong chance to increase the profitability of Groupon. That particular outfit has a solid presence in Korea, earning $800 million of annual revenue from millions of customers.
The daily deals business is ultra competitive with too many players already on it. Groupon is shrewdly making the right moves to lessen its reliance from its original cash flow business. The new management team is willing to risk some of the company's fat cash reserves to acquire new units of business. I like what they are doing. Buying a well establish company is much cheaper to do than putting up a new subsidiary.
Groupings sub-$10 valuation of the stock market may be justified by its negative EPS. However, bargain hunters willing to hold GRPN for long-term gains should consider buying this stock now at the $9 to $9.99 price range. The holiday season is upon us, the company's unique Grouponicus holiday promo of bundled Christmas deals will most likely help it achieve record breaking sales this December.