What happened
Shares of Groupon (GRPN +1.21%) were moving higher on Friday after the discount deals specialist got a bullish analyst note last night.
The stock closed the day up 16.2% on the news.
Image source: Getty Images.
So what
Roth MKM initiated coverage of the e-commerce stock with a buy rating and a price target of $30, representing nearly 200% upside from where the stock closed last night.
The research firm noted that Groupon's sales and profits were crushed by both the pandemic and the reopening. Merchants generally avoided discounting during that time as consumers were flush from stimulus payments and stores were short-staffed.
However, with consumer spending slowing down and inflation pinching lower-income Americans, Roth expects demand for Groupon's services to rise, and the business could see strong profit growth thanks to its operational leverage, or the relatively low variable costs in the business.
Now what
Groupon has been forgotten by both customers and investors over the last decade, but the platform broke onto the scene during the depths of the 2008-09 recession when consumers were looking for deals, and merchants were trying to drive traffic and make up for a slowdown in demand.
The buzz around the platform mostly fizzled out as merchants moved on, and the novelty of using it for consumers wore off. As a result, the stock has plunged over the last decade.
However, more recently, Groupon stock has started to recover, and it is actually up 73% over the last year.
Revenue in its second quarter fell 16% to $129.1 million, but investors were encouraged by improvements on the bottom line thanks to its cost-savings program. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $5.7 million in the quarter the year before to $15.2 million, and it narrowed its adjusted net loss.
If revenue starts moving in the right direction, the stock could have a lot of room to run. That's a big "if," but Groupon could emerge as a valuable platform again if the economy weakens.
