RBC Becoming 'More Cautious' on Groupon (GRPN)

A year after upgrading the stock and 8 months after raising his price target as high as $8, RBC analyst, Mark Mahaney, is now becoming more cautious on shares of Groupon (NASDAQ: GPRN) but still maintaining his Sector Perform rating. GRPN dramatically cut growth expectations as the company is prioritizing away from certain product categories (e.g. Consumer Electronics), while announcing a significant marketing campaign that it expects will add $150-$200MM of marketing expense in 2016.

Mahaney says in his note: “The silver lining here is that Groupon appears to be pivoting away from its Goods investments. But the core business will still require a material marketing investment that could take a long time to prove out.”

Notes from the quarter:

Revenue of $714MM (+7% Y/Y ex-FX) was 3% below Street, while EBITDA of $56MM was in-line.

GRPN dramatically cut growth expectations as the company is prioritizing away from certain product categories (e.g. Consumer Electronics), while announcing a significant marketing campaign that it expects will add $150-$200MM of marketing expense in 2016.

Billings +6% Y/Y (ex-FX) to $1.5B in Q3, vs. 10% in Q2

Revenue grew 7% Y/Y (ex-FX) to $714MM in Q3, vs. 11% in Q2. Growth rates decelerated @NA, EMEA and ROW

Active Customers grew 4% Y/Y to 48.6MM

Billings grew only 8% Y/Y in Q3, in-line with Q2

“While current valuation– 9X EV/EBITDA on depressed 2016 estimates – appears ballpark reasonable, we don’t see GRPN shares potentially outperforming the market until its fundamentals base out.”

RBC Capital cut its price target on GRPN TO $4.00 (from $6.00).

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 $4.03 yesterday.

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