Ahead of the Bell: Groupon upgraded, shares rise

Sterne Agee analyst raises rating for Groupon, has growing confidence in the changing business

Associated Press

NEW YORK (AP) -- Shares of Groupon climbed in premarket trading Wednesday after an analyst upgraded the company, saying he sees potential in the company's changing business model in the long term.

Arvind Bhatia of Sterne, Agee & Leach raised Groupon Inc. to "Buy" from "Neutral" and set a price target of $9 on the shares.

Shares added 41 cents, or 7.8 percent, to $5.70 before the opening bell. The stock, which went public in November 2011 at $20, has lost 73 percent of its value over the past 12 months as revenue growth slowed.

The Chicago company pioneered the online daily deals market, offering subscribers deep discounts on everything from spa sessions to toe fungus treatments. As growth in that business slowed, and in an attempt to distinguish itself from copycat online deals websites, Groupon has tried to establish itself as a local e-commerce company. It now also sells electronic gadgets and other goods.

Bhatia said in a Wednesday client note that he's increasingly confident about Groupon's effort to grow its business from mostly emailing deals to potential customers, to becoming a marketplace where people find deals through search engines.

Groupon has been testing this marketplace in Chicago and New York, and may roll it out to more cities over the coming months. Bhatia said it could be an "important growth driver" for Groupon.

He also was more optimistic about the international business, even though he doesn't expect any quick turnaround in Europe. The weak economy there has weighed on the company.

In addition, Bhatia believes competition may be easing, and Groupon remains the biggest company in the online daily deals sector.

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