Ygal Arounian maintained a Neutral rating on Groupon with an unchanged $3.50 price target.
The analyst also maintained a Neutral rating on Yelp with an unchanged $38 price target.
The combination of Groupon and Yelp could generate revenue and cost synergies and create a combined entity that is in a better position to compete against digital advertising giants like Google, Arounian said in a Friday note. (See his track record here.)
The math behind the estimates assumes around $400 million in revenue synergies, or 10% incremental revenue to the current combined revenue, and $400 million in operating synergies in 2021, the analyst said.
The combined entity would be able to generate EBITDA of between $1 billion and $1.4 billion, Arounian said.
These figures are far from an "automatic home run," and management would need to overcome challenges, including Groupon's ongoing customer losses and declining revenues, he said.
Groupon can structure a deal in several ways, but will need to a pay premium to take over Yelp, the analyst said.
An all-stock offer is unlikely given Groupon's recent execution history, and a 50-50 cash/stock offer at $50 per share — 43% premium — would give Yelp investors a premium and the chance to further gain if management executes on synergies, according to Wedbush.
Groupon shares were trading 2.23% higher at $2.75 at the time of publication, while Yelp shares were trading down slightly at $35.05.
Groupon's Transition Year Keep Analysts On The Sidelines
Analyst Likes Groupon's Stock, With Or Without An Acquisition
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|Feb 2019||Initiates Coverage On||Neutral|
|Sep 2018||Initiates Coverage On||Neutral|
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