Groupon Inc (NASDAQ: GRPN)
Groupon has had a rough time in the market over the past several months. However, in mid-February, it seemed like things were changing for the better. In fact, after big news in February that Alibaba made a big investment in the company, the stock has gained by more than 60%. However, the stock is down, and in a big way today. So, what’s pushing GRPN downward? The answer… analyst opinions. Recently, there was a big analyst downgrade on the stock, and that’s putting fear back into the hearts of investors. Today, we’ll talk about the downgrade, how the market’s reacting to the news, and what we can expect to see from GRPN moving forward.
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Gropuon Is Downgraded By UBS
As mentioned above, the primary reason for the massive declines we’re seeing on GRPN today is a major analyst downgrade. Analyst Eric J. Sheridan from UBS announced his opinion with regard to the stock today, downgrading GRPN from Neutral to Sell with a price target of $3.20 per share. This insinuates a downside risk of 30% on the stock. In a statement, Sheridan had the following to say:
“While Groupon has recently shown signs of progress in its transformation to an eCommerce marketplace and its core initiatives (including streamlining its international operations or customer acquisitions), we believe there is still a long road ahead in strengthening the company’s position in the local ad and/or local eCommerce market. Meanwhile, larger internet companies, predominantly Google and Facebook, are increasing their efforts to capture local ad dollars while Amazon’s same-day delivery service reduces the benefit of a local marketplace…”
How The Market Reacted To The News
The reality is that news moves the needle in the market. Bad news generally leads to bad movement, and when it comes to GRPN, the stock has been teetering in the middle of positivity and negativity. So, it only took a small amount of news to tip the scales. Unfortunately, as a result of the analyst downgrade, we’re seeing large declines on the value of Groupon today. Currently (10:09), GRPN is trading at $4.20 per share after a loss of $0.38 per share or 8.30% thus far today.
What We Can Expect To See Moving Forward
While analyst opinions are important, it’s not always a good idea to act on what the analysts have to say. In particular, this announcement is fundamentally flawed. The reality is that due to the declines we’ve seen on GRPN over the past several months, the company is trading at an incredible discount, even after recent movements toward a recovery. I also take issue with the reason GRPN was downgraded. While Google and Facebook have been working on expanding the presence in the local advertising space, Groupon is slowly making a name for itself. The reality is that Groupon’s business model is structured around offering the largest discounts in the local space, while making a large margin of profit on top of the discounts. The average online consumer is looking to save as much money as possible, and a short analysis of coupons you find in Google and Facebook ads in comparison to coupons you find on GRPN will show that Groupon is the king of saving money for consumers. Not to mention, GRPN is making a larger profit per sale than any of the online ad giants. The truth is that the recovery we’ve seen from Groupon is not only warranted, it’s long over due. While we may see short term declines as a result of fear surrounding the analyst opinion, fear is an emotion, and that will fade. In the long run, I’m expecting further gains out of GRPN.
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What Do You Think?
Where do you think GRPN is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Flickr]