Groupon Inc., the biggest daily deal website, jumped 12 percent after analysts at Deutsche Bank AG upgraded the stock, citing optimism that increasing use of the company’s mobile application can boost sales.
The shares rose to $7.65 at the close in New York, for the biggest gain since March 1. The stock has advanced 57 percent this year, compared with a 14 percent gain in the Standard & Poor’s 500 Index.
Co-Chief Executive Officers Eric Lefkofsky and Ted Leonsis are working to stabilize the company while they search for a replacement for Andrew Mason, the Groupon co-founder they ousted as CEO in February amid faltering growth. Groupon, which started out promoting discounts via e-mail alerts, is adding customers as more smartphone users turn to its mobile app, according to Ross Sandler, an analyst at Deutsche Bank.
“Groupon is surprisingly the most mobile penetrated e-commerce company we track,” Sandler wrote in a research report today. He upgraded the shares to buy from hold and raised his target price to $10 from $6.
Aided by a surge in sales to mobile users, revenue will surge 53 percent to $3.56 billion in 2015 from $2.33 billion last year, Sandler estimated. That exceeds analysts’ average projection for 2015 sales of $3.04 billion, according to data compiled by Bloomberg.
The Chicago-based company makes money by offering consumers discounts --known as Groupons -- from businesses such as restaurants and nail salons. It then shares the revenue with the businesses.
Coupons sold on mobile devices accounted for 45 percent of all transactions in North America in the first quarter, up from less than 30 percent a year earlier, the company said last month. The increase was driven by product improvements such as mobile search as well as growth in the number of local deals offered via wireless devices, Chief Financial Officer Jason Child said in an interview at the time.
“Mobile is the key story in North America,” Child said.
Groupon will also benefit as it integrates companies acquired outside the U.S. to improve the mobile service for international users, Sameet Sinha, an analyst at B. Riley & Co., said in an interview.
“They were growing so fast, and all these markets were growing on separate platforms,” said Sinha, who has a neutral rating on the shares and a $5 target price. “Now, what Groupon is saying is, ‘That’s not going to work. We need to be on one consistent platform.’”
To speed expansion outside the U.S., Groupon last month invested in SumUp Ltd., which allows credit card payments via smartphones or tablets.
Even as Groupon adds mobile users, the company may still struggle to bolster revenue as customers become weary of daily-deals, according to Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor.
“The mobile app won’t solve the deal fatigue problem, but mobile is a better channel for them because half their audience now avoids e-mail,” Gordon said. “E-mail is slow and clunky and easy to ignore. Mobile apps are fast and easy, and can be more precisely geographically targeted.”