Groupon Jumps Most Since April After Piper Jaffray Upgradeby
Analyst cites narrowed product and regional focus for rating
One-time tech darling has struggled since its 2011 IPO
Groupon Inc. jumped the most in three months Monday after analysts at Piper Jaffray Cos. upgraded its recommendation for the online marketplace, citing the company’s narrowed focus and marketing spending as driving growth.
“Groupon is quickly narrowing its product and regional focus to the categories where it can be successful, while deploying marketing dollars to drive growth in North America local deals,” Piper Jaffray analyst Samuel Kemp wrote in a note. He upgraded his recommendation to overweight from neutral.
The shares rose as much as 11 percent, the most intraday since April 4. They were up 8.5 percent to $3.79 at 10:37 a.m. in New York, bringing the gains for this year to 26 percent.
Once a tech darling, Groupon has struggled since its 2011 initial public offering to spur growth and profit. Groupon replaced Chief Executive Officer Eric Lefkofsky in November and new CEO Rich Williams has increased the marketing budget to revive and reinvent the company.
The Chicago-based company is spending $150 million to $200 million on marketing this year compared with last year, Kemp said, most of that in the U.S., which will drive as many as 4.5 million new accounts over the course of 2016 and see similar levels next year. Those new customers will eventually drive $215 million to $280 million in annualized gross profit and return North America local billings growth to double-digit levels, Kemp said. At the same time, Groupon is moving toward higher margin products, according to Kemp.
“These operational shifts will not only benefit Groupon’s profitability, but we expect it to drive a more focused and methodical company, differentiating itself from the scatterbrain approach of the past,” Kemp said.