- Groupon stock has continued its slide and is now down to $2.98 a share.
- However, shares are not attractive for a wide variety of reasons.
- Alex Xu assigns the stock a price target of $2 a share, way lower than its current price.
Groupon stock has lost nearly two thirds of its market cap this year. The stock is down by just under 64%, from $8.26 at the beginning of the year, and slipped below the $3 mark on Friday, falling by a further 3.25%, while broader markets slid by about 2%. Now with Groupon stock down by as much, and the holiday season approaching, is it finally attractive enough to consider? The creator of this video, Alex Xu doesn't think so.
Groupon (NASDAQ:GRPN) may appear to be cheap in terms of its Dollar value, however, Alex believes that there are some problems with Groupon's business model. The problems he believes start with the company's shaky management, which has seen several top executives leave the company over the years, including the co-founder and ex-CEO Eric Lefkofsky. Now with Rich Williams taking over the reigns a short while ago, the new management is yet to make a mark on the the company's fortunes. While the company's high margin local deals business faces increasing competition, a lot of advertisers go through the traditional routes, because they are still way more economical.
Groupon charges its advertisers or local businesses, up to 50%, which hurts their profitability significantly. As you'd expect, Groupon is trying to enter other areas, like Goods and Getaways, which is basically e-commerce and travel/bookings. The problem is that there are a lot of very focused companies already controlling these areas. For example, Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) are huge players in e-commerce, while Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE) are arguably some of the biggest names in travel and hotel bookings. Alex thinks that Groupon is going to have a hard time breaking into these markets and making significant inroads.
Revenue and earnings for Groupon have hovered within narrow ranges and haven't really grown for a long time. Analyst estimates also indicate that no stellar performances can be expected from the company in the upcoming holiday season, with revenue anticipated to be a lot lower in this year, compared to the last.
Alex thinks Groupon is a strong sell, with a price target of $2, which translates to nearly a 50% drop from its closing value in Friday's trade, at $2.98 a share. Given the cash burn rates for Groupon and the low entry barriers in all its areas of business, there seems very little that's going Groupon's way at the moment. Alex suggests that the seemingly low prices don't warrant a buy decision.