Evercore Boosts PT on Groupon (GRPN) to $3; Likes Push into Goods, Sees Highly-Competitive Environment

November 30, 2012 7:39 AM EST
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Price: $3.49 +0.58%

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    11 Buy, 20 Hold, 6 Sell

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Groupon (Nasdaq: GRPN) shares are lower early Friday morning as Evercore Partners is out with some comments on the company's strategy post third-quarter results issued earlier in the month as well as Groupon's strategy into the holiday season. The firm maintains an Underweight rating, but boosts its price target by $1 to $3.

Evercore's Ken Sena notes that Groupon in de-emphasizing its Daily Deals business and moving more into retail. Groupon's three key segments now are: Daily Deal, 3P Good & Travel, and Direct Goods.

Sena thinks that Groupon's goods business will be a key driver for the company moving forward, saying that, "A major reason is that Groupon has at its disposal 40 million or so active customer accounts in addition to a steady stream of inbound traffic to its site through its Daily Deal services platform." Goods has grown to a quarter of the company's total billings, with Sena estimating that 3P Goods and Travel accounts for less than half of the total.

Sena also points out that "while Groupon generates about $24 in Goods revenues per active user, Rue La La and Gilt are over $200 and $100, respectively."

Daily Deals erosion continues, with Sena sees a 21 percent decline in sales sequentially in Q3, though smaller peers are experiencing the same decline.

Looking ahead, Sena comments, "Going forward, we expect billings to remain largely flat at $5 billion with Daily Deals increasingly giving way to Goods, both those sold directly and indirectly. We currently estimate Daily Deals to decrease by roughly a third from $4.2 billion in 2012 to $2.6 billion in 2013 and decline at a moderating -8% CAGR rate following. Offsetting this decline is growth in Goods (both 3P and 1P) which we see increasing from roughly a billion in 2012 to $2.5 billion in 2013 and increasing at a 6% CAGR thereafter."

The firm is maintaining its Underweight rating given lack of competitive barriers and the highly competitive retailing environment. Shares are down about 5 percent ahead of the bell.

For an analyst ratings summary and ratings history on Groupon, Inc. click here. For more ratings news on Groupon, Inc. click here.

Shares of Groupon, Inc. closed at $4.54 yesterday.

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