Groupon Gets Average Grades on Analysts’ First Report Cards
A handful of analysts issued report cards today on Groupon that raise a lot of concerns about how the 3-year-old daily deals company will evolve over the next couple of years.
In midday trading, the company’s shares fell 5 percent to $22.09 a share. Even so, that’s up from late last month, when the Chicago company traded as low as $15.24 a share, or roughly half of what some investors paid on day one.
The company is like a student in high school who still needs to push in order to get accepted into an Ivy League school. Even though it’s likely a shoo-in — and it’s already gone public — there’s no leeway for senioritis.
Most of the analysts’ evaluations were concerned about risks, such as the company’s short operating history, the prospects for growth now that it has gotten so large and intense competition coming from peers like LivingSocial, Amazon and Google among many others.
“While much execution lies ahead in order to meet expectations, the opportunity is large and Groupon has competitive advantages,” according to Barclays Capital, which had a neutral rating and a price target of $27.
J.P. Morgan also gave Groupon a neutral rating, but set a lower price target of $24 a share because there was still a lot to do despite its first-mover advantage.
“As subscriber growth slows, we project a major profitability ramp for Groupon over the next two years. However, we believe this ramp is largely anticipated and its magnitude leaves little room for error in execution and operations at current levels,” the analyst wrote.
Citigroup’s Mark Mahaney had the harshest words, saying he was “waiting for a better deal.”
He attributed his neutral stance and $24 price target to the lack of success in the company’s new segments, such as real-time offers, vacation packages and physical goods. “That, we believe, could take significant time to prove out,” Mahaney explained.
Nearly all the analysts were also concerned about the upcoming expiration date for a lock-up period. Expected in May 2012, it would allow some early investors and employees to dump the stock.
In other words, we could see a lot of people cashing in their vouchers right as the offer expires.