Wednesday, 13 February 2013 23:50

Daily deal site Groupon lands first upgrade in months

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Just a few weeks ago, one of the quickest ways to ruin your popularity would have been to say you really thought it was good idea to purchase Groupon stock.

Today Groupon landed its first upgrade in months, after Sterne Agee raised its rating on the shares to buy. For the most part, 2012 was pretty much a lost year for Groupon, at least in terms of the stock returns for what was once considered one of the hottest firms in the Web 2.0 category.

Disappointing quarterly results, a Securities and Exchange Commission inquiry into refund practices, and talk about an oversaturated market for online daily deals all combined to chop down Groupon to the point where — on the first anniversary of its IPO — the stock had fallen to $2.60 — an 87% decline from the stock's IPO price of $20.

 

Groupon's shares jumped more than 6% to $5.61 by midday today. Much of Wall Street remains cool on the stock, even given the 120% rise from its low point. Of the 20 analysts that FactSet lists as having ratings on Groupon, Bhatia is now just the third to put a buy rating on the stock.

Fourteen analysts rate Groupon at hold, and the remaining three say to sell the stock. But in his note to clients, Bhatia said there are several issues working in favor of Groupon at the current time that warrant a re-consideration of the company that — in the minds of many — has been the poster child for the quick rise and retreat of the online daily deal industry.

Specifically, Bhatia said that Groupon has been quietly positioning itself "beyond the email in-box business." Among the initiatives Bhatia pointed to is how Groupon recently began testing a local e-commerce marketplace for active deals in New York and its hometown of Chicago, and that such a service should go national in the next few months.

This marketplace has the potential to become an important growth driver for Groupon,” Bhatia wrote. And Bhatia also said Groupon's mobile commerce position gives it a business model "well suited for the mobile web," as about one-third of its transactions already come from mobile devices.

"Unlike Internet companies dependent on advertising models that are tougher to translate from desktop to mobile, we believe Groupon's daily deal [and] marketplace business is a natural extension of its desktop business." Yet even Bhatia was cautious about getting too excited about the company right way. Still, Bhatia said competition in Groupon's business market is easing up, and "a more-constructive, longer-term view of the company" remains the best way to look at Groupon.

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