It’s been over six years since Groupon Inc (NASDAQ:GRPN) pulled off its high-profile initial public offering. The deal represented a validation of the rapidly growing daily deals market. As for GRPN stock, it would quickly jump from $20 to $28.
But of course, the gains proved to be fleeting. In about a year, the shares would be trading below $4.
The failure of GRPN was a combination of factors. The company expanded too quickly — especially in international markets — and was not disciplined with its costs. What’s more, the market for daily deals turned out to be faddish, as many competitors rushed to jumped in.
Despite all this, I think it would be a mistake to somehow think that GRPN stock is doomed either. The past year has shown that there is certainly life in the business, although perhaps not to the extent when the venture capitalists and Wall Street bankers spun up the public offering.
If anything, I believe there is still more upside with GRPN stock. So let’s take a look:
Bullish Factor No. 1 For GRPN Stock: Leadership
Since taking the helm in late 2015, GRPN CEO Rich Williams has shown his abilities to effectively restructure the operations. He has significantly cut back on the number of markets served, instituted strict requirements for the payback on investments and has continued to innovate the product offerings.
He also realizes that there should not be an obsession with revenues. For the most part, he understands that certain businesses are not worth pursuing because of the slim margins.
As a result, GRPN has shown quite a bit of traction lately. For example, during the latest quarter, the adjusted EBITDA jumped by 43% to $46.6 million and billings grew by 14%. The company also has the No. 1 retail app (nearly two-thirds of transactions come from mobile sources) and a customer satisfaction rating is at 89%.
Bullish Factor No. 2 For GRPN Stock: Growth Opportunities
GRPN is targeting a massive opportunity — that is, the local e-commerce market. Based on the company’s investor presentation, there are over 5 million small and medium-sized businesses in the U.S., and the company has about 400,000 of them. Only about 28% of these businesses also have an online presence.
To capitalize on this, GRPN has worked hard to reinvent its daily deals model. To this end, the company has made its offerings much more relevant and personalized. Then there is the Groupon+ platform, which integrates the discounts on customers’ existing credit cards. This provides much more convenience, which helps to improve the usage of the service.
According to Williams: “It’s still early in the game for Groupon+, which remains a very small portion of transactions, but we’re encouraged by the positive customer engagement we’re seeing as well as improved merchant conversion and retention, which is helping build a stronger overall supply picture for our marketplace. Improved supply matters, because it delivers a critical part of the customer experience.”
Bullish Factor No. 3 For GRPN Stock: Finances and Valuation
The overall finances are also in good shape. Note that there is $639 million in the bank and there is no long-term debt.
And interestingly enough, GRPN may ultimately prove to be an enticing buy-out candidate at some point. A large brick-and-mortar retailer like Wal-Mart Stores Inc (NYSE:WMT) or Target Corporation (NYSE:TGT) may see the company as a good way to help bolster its e-commerce efforts.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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