Why is Groupon a stock that is undervalued?

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Illustrative Editorial of Groupon website. Shutterstock/II.studio

Groupon (GRPN) has been a turnaround stock for much of the past decade. The origin story of Groupon boils down to it providing online marketing for local businesses, which was previously out of reach for many small businesses. Collaboration with Groupon meant that local business owners would offer Groupon customers a discount in order to attract these new customers.

For providing the platform, Groupon took a cut of the promotional sales, while consumers benefited from the discounts. It was an innovative concept that combined the savings typically associated with bulk purchases with the rapidly expanding world of e-commerce.

Groupon has undervalued assets and a positive potential that should be considered as it seeks to reduce its cost structure. Groupon is trading at a very low multiple of adjusted EBITDA and is trading at a price that is reasonably close to book value. Groupon is still profitable on an adjusted EBITDA basis.

CEO Kedar Deshpande, who is leading the back-to-basics shift, stated in the third-quarter earnings release, “Improving local purchase frequency is the most important measure of how well we are executing our strategy, and we are going to be relentless in driving this metric higher.”

Groupon was in its early stages during the previous recession, but the financial banking crisis aided in propelling the platform’s popularity skyward. When money is tight, customers want deals. Leads are important to local businesses. Groupon exists to meet both needs, taking a sizable cut of the transaction as the magical middleman.

Going forward, Groupon forecasts $100 million in annual free cash flow in 2023, and a 15-20% Adjusted EBITDA margin in the full year 2023.

CWEB Groupon Stock Chart

With inflation coming in at 9.1% and recession fears, consumers will be looking for cost saving purchases. As the king of daily deals, consumers will look for deals and deep discounts on merchandise and services which Groupon has to offer. Groupon has been able to maintain its entire active customer base in North America at about 15 million, largely due to local consumer growth. The number of completed transactions in North America increased by 1% annually and by 8% over the previous quarter, showing that local customers are making purchases more frequently.

The new plan, according to the Chicago-based e-commerce site (Nasdaq: GRPN), aims to “reduce our cost structure and fundamentally improve our marketplace experience to sustain long-term development.

Groupon will be making a turnaround plan mentioned in its latest earnings call report.

  • Reduce Cost Structure Differentiate Inventory to Drive Growth
  • Incorporate operational excellence approach and challenge base-level assumptions
  • Streamline our technology platform and overall operating processes
  • Right-size our cost structure to ensure the right mix of variable and fixed costs.
  • Fix Core Business
  • Improve inventory density across markets
  • Create a better customer experience
  • Increase customer trust
  • Grow top line by expanding our inventory through differentiation
  • Create curated inventory collections that combine Local inventory in new, unique ways
  • Launch a premium beauty and wellness marketplace experience to better serve high-intent customers

Groupon has introduced a new Best Price Guarantee, ensuring that customers get the best available price when purchasing experiences and services this holiday season and beyond. If a customer discovers a lower price on an eligible deal they’ve purchased, Groupon will refund the price difference in full. AND, to give customers even more confidence in their pricing, Groupon will give them an extra 25% of the price difference in Groupon Bucks to use on a future purchase.

Prescience Point Capital Management predicts that Groupon share value should be in the $70-$100 range, after Groupon confirmed its stake in SumUpon, on a bullish trend. This is an estimation and not financial advice.

Groupon features deals: everyday deals, trending deals, featured deals, popular deals, new deals, region-based deals and more in various categories including food and drink, beauty, experiences, gifts and more.

In the current consumer environment, Groupon will be an outperformer. Groupon will maintain a strong position regardless of where the economy is headed, making Groupon a Strong Buy.

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Groupon Stock Could Fly High in the 4th Quarter Despite Recession Fears

 

 

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