Groupon will likely experience “continued stability” in its Local business, concludes Morgan Stanley analyst Dean Prissman. The conclusion from the analyst is based on the analysis of both older and newer customers. He has assigned Groupon shares an Equal-Weight rating with a price target of $9 per share.
Drop in take rates a concern for Groupon
According to a survey conducted by the analyst, local satisfaction rates for Groupon were very high at over 90% in the wake of company’s decision to shift its focus from dependability on an email model that produced mixed business performance for the company.
Prissman noted that his analysis also reveals the bad news that customer couponing and commission rates concessions place a ceiling on upside for the company. Groupon’s business is stable in North America, which suggests the company is heading in the right direction, but a drop in take rates create ambiguity on the flow-through to profitability and ability to forecast material upside.
Will it sustain growth rate in North America?
Groupon has been striving to make a comeback for quite some time now, with growth in North America as a core area of focus for analysts. In a recent report, Sterne Agee analysts Arvind Bhatia and Brett Strauser reiterated their Buy rating on Groupon with a price target of $12 per share. After meeting with Groupon’s management, they now believe that the company can balance the recent growth in North America. Groupon has been able to mark an impressive performance in the region because of an easy comparison with the previous year. According to the analysts at Sterne Agee, the North America Local segment is expected to post double-digit growth.
The analysts believe that during the meeting, management appeared confident, acknowledging positive trends in the North America Local division and expecting double-digit growth in billing in the segment. However, to win back the trust of Wall Street, Groupon needs to be consistent with its double-digit growth rate.
The Sterne Agee analysts noted that the email segment of Groupon’s business is running smoothly, and the non-email part is growing gradually, suggesting the company will be able to achieve the targets management has set.
