E-commerce marketplace connector Groupon (NASDAQ:GRPN) has been battling to turn things around. While the reaction to recent Q4 and FY2023 financials triggered a decline in the shares over the past few days, green shoots among the numbers suggest a spring-like renewal might be happening. Despite skepticism, Groupon’s renewed efforts towards a turnaround show signs of progress, such as strategic cost containment and an improved balance sheet. At current valuation levels, Groupon’s journey to financial recovery might be worth a watch for investors.
Turnaround In Progress
Groupon connects consumers to various local and national merchants by offering online daily deals in services, including but not limited to dining, health and beauty, fitness, home, and garden.
Since the halcyon days of 2015, when the stock crested at over $160 a share, the company has faced numerous challenges. Shares have cascaded down over 90% since then. The company is currently in the midst of implementing plans to revive its business operations.
To shore up its balance sheet, Group recently raised $100 million in liquidity through a combination of asset sales, including selling off its stake in start-up SumUp, and a fully backstopped $80 million rights offering.
Recent Financial Results
Groupon’s Q4 and full-year financial reports for 2023 revealed another challenging year with declining revenue figures. Q4 revenue fell by 7% YoY to $137.7 million, and the full-year revenue was down by 14% to $514.9 million.
However, in a sign of progress towards turning the ship around, the company posted an EPS of $0.30, beating estimates of $0.12 per share. Also, the Q4 2023 net income of $28.5 million was a significant improvement from the previous year’s net loss of $54.2 million for the same period. For the full year of 2023, Groupon narrowed its net loss significantly to $52.9 million, compared to the considerably higher loss of $234.4 million experienced the previous year.
Further signs of financial progress are reflected in the positive adjusted EBITDA figure of $26.9 million for Q4 compared to a negative $5.3 million in 2022’s fourth quarter. Full-year figures also improved considerably, reaching $55.5 million, a substantial shift from the negative adjusted EBITDA of $15.1 million in 2022.
Where the Stock Stands Now
GRPN stock has been on an uphill trajectory in the past year, climbing over 219%. However, negative market reaction to recent financials has seen the stock shed more than 32% in the past few days. The stock’s last closing price of $14.36 is trading toward the upper middle of its 52-week range of $2.89-$19.56. The negative shift in price momentum has the shares trading below the 20-day (17.33) and 50-day (15.98) moving averages.
Based on comparative metrics, the stock appears relatively undervalued. The P/S (price-to-sales) multiple of 0.82x is below the averages of the Communication Services sector (2.53x) and the Internet Content and Information industry (5.23x). While relative metrics can be a good tool for a quick apples-to-apples comparison, it’s helpful to remember that they are only one piece of a much larger puzzle.
Earnings drive long-term value for shareholders. In this regard, Groupon has yet to consistently deliver…though Q4 may mark the turning point in that trend. If so, it could be a catalyst for GRPN multiples to expand to a fuller valuation.
Is GRPN Stock a Good Buy Now?
Analysts covering Groupon stock have been split. For example, Goldman Sachs analyst Eric Sheridan recently reiterated a Sell rating and set a price target of $12, citing skepticism on the company’s ability to sustain the progress on turning things around. Meanwhile, Sean McGowan of Roth MKM maintained a Buy rating with a price target of $28, projecting notable improvement in controlling expenses and driving higher profitability.
Groupon is listed as a Moderate Buy based on two Buys and one Sell rating in the past three months. The average GRPN stock price target of $18.17 represents an upside potential of 26.5% from current levels.
The Big Picture for Groupon
Groupon appears to be making strides in the right direction, though there is still some way to go. The recent wave of asset sales, rights offerings, and strategic cost containment has improved the company’s position, as reflected in its Q4 net income and an overall narrowed net loss for 2023. While some remain skeptical, signs of consistent, meaningful improvement should not be discounted lightly.
As the saying goes, Rome wasn’t built in a day – and neither is a successful financial turnaround. While the shares trade at a relative value, prudent investors will want to see ongoing improvement as a sign that the company isn’t stuck in perpetual value trap mode. Whether you’re a long-term investor or a short-term trader, one thing is clear: the next chapter in Groupon’s tale will be one to watch closely.
