Groupon Signals Probable Turnaround in Operations

Groupon Signals Probable Turnaround in Operations

 
The stock of discounted deals provider Groupon, Inc. (NASDAQ: GRPN) is in an uptrend after it reported a narrowed net loss in the fiscal 2017 second-quarter. The company missed the revenue estimates by a small margin, but surpassed earnings estimates. The company realised that it cannot compete with online retailing giants such as Amazon and Wall-Mart and has started focusing more on local deals. That is really giving a boost to its business, as explained below. Thus, we expect the stock of Groupon to remain bullish in the short-term.

The Chicago-based company reported a net loss of $9.33 billion, or $0.02 per share, on revenues of $662.62 million in the second-quarter of 2017. In the similar period last year, the company posted a net loss of $54.904 million, or $0.10 per share, on revenues of $723.76 million. Excluding charges, Groupon reported a non-GAAP net income of $11.96 million, or $0.02 per share. Analysts had expected the eCommerce company to report a break even on revenues of $670 million.

Groupon now boasts of nearly 32 million active customers in North America. The company’s gross profit grew 8% in the second-quarter, to $234 million. While gross margin on direct sales was 15.3%, local deals resulted in a gross margin of 86.5%. The subtle changes in the operations have reinstated confidence in the company.

The company saw a good response to the newly introduced Groupon+ option, which allows customers to receive cashback deals without the need of printing coupons. The cashback deals are linked to users’ credit cards.

Samuel Kemp, an analyst at Piper Jaffray, said that Groupon seems to have completed its restructuring through cost cuts and can now focus on its core business. The company has eliminated 600 jobs in the past year.

Kemp believes that Groupon may soon become a potential takeover target for investors. His argument is based on the fact that Joey Levin, CEO of IAC, which owns a collection of brands, has recently joined the board of Groupon. Commenting on the developments, Tom Forte, an analyst at D.A. Davidson opined that Groupon has proven to be viable and is back on a growth path. The Vetr crowd upgraded its rating on Groupon, from three stars (Hold) to five stars (Strong Buy). Thus, we expect the stock to move up further in the nearby future.

Technically, the stock has started rising after consolidating at the level of 4. The MACD indicator is making new highs, while the moving average deviation is above the reading of zero. On the upside, the next major resistance is only at 5.40. Thus, we can expect a continuation of the uptrend.

Groupon - Technical Analysis - 3rd October 2017

To capitalise on the bullishness, we are looking at the possibility of investing in a call option valid for one week. Additionally, the stock should be trading near $5.


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