Groupon's (GRPN) Rating Cut to 'Sell' at UBS as Shares Trade 30% Above Price Target

(Updated - March 9, 2016 7:51 AM EST)

UBS downgraded Groupon, Inc. (NASDAQ: GRPN) from Neutral to Sell with a price target of $3.20, implying downside of 30%. Analyst Eric J. Sheridan highlighted lack of scale and poor risk/reward, and he thinks pressure on the company is unlikely to ease. UBS's 2016 and 2017 estimates are below consensus.

"While Groupon has recently shown signs of progress in its transformation to an eCommerce marketplace and its core initiatives (including streamlining its international operations or customer acquisition), we believe there is still a long road ahead in strengthening the company's positioning in the local ad and/or local eCommerce market. Meanwhile, larger Internet companies, predominantly Google and Facebook, are increasing their efforts to capture local ad dollars while Amazon's same-day delivery service reduces the benefit of a local marketplace," said Sheridan.

The analyst added, "In analyzing the relative competitive positioning of Groupon, we highlight a number of key weaknesses: a) marketing spend will pressure near-term margins; b) increased competition in Goods; c) mix shift to lower margin 1P business; and d) slowing customer and engagement growth. In our deep dive report 'The Impact of Scale on the Local Opportunity', we highlight the relative weaknesses/vulnerabilities as a) execution on an International retrenchment; & b) lack of operating profit scale to drive additional investments in innovation that might counter-act the platform strength of Google and Facebook. On operating profit (using the definition of EBITDA – Stock Based Comp – Capex for the purpose of this report), Groupon generates a cumulative $5mm loss over the 2016 2020 timeframe."

UBS sees FY16 revenue of $2.99 billion vs. Street of $3.01 billion and adjusted EBITDA of $108 million (vs.Street of $111 million). Its FY17 estimates are for revenue of $3.1 billion (vs. Street of $3.17 billion) and adjusted EBITDA of $185 million (vs. Street of $191 million).

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 $4.58 yesterday.

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