Groupon Inc (NASDAQ: GRPN)
Groupon has had a relatively rough time since last summer. For a while there, the stock seemed to be on a downward spiral that seemed never ending. However, we've seen a sharp recovery in the stock that started in February. In fact, through February and early March, the stock has gained around 80%. So, what's causing the massive gains? Will the gains continue? What can we expect to see from GRPN? I will do my best to answer all of these questions today.
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What Caused The Gains In GRPN?
As mentioned above, Groupon started to gain in the market in February, and it happened for a very good reason. In the month, Jack Ma's Alibaba Group Holding Ltd (NYSE: BABA) announced that it had purchased a large stake in the coupon company. In fact, in the month, Alibaba purchased 5.6% of the company. This gave GRPN a massive amount of operational funding and, perhaps just as importantly, views, opinions, and advice from one of the most impressive businessmen in China! Since the purchase, GRPN has been soaring through the market, and it seems as though the gains are continuing. In fact, we're still seeing massive growth in the stock today. Currently (10:52), the stock is trading at $4.85 per share after a gain of $0.19 per share or 4.08% so far today. Now the big question is...
Will GRPN Hold Onto The Gains?
There has been quite a bit of conversation with regard to Groupon's ability to continue growing in the market. To be honest, there are great arguments on both sides of the equation, and they both have to do with Alibaba's stake in the company. Here's what we're hearing about GRPN from both the bulls and the bears:
- Bearish Views – The bears argue that the growth we're seeing in GRPN is directly correlated with Alibaba's investment. While there's nothing wrong with growth from large investments, the concern is that Alibaba will sell its stake in the company just as fast as it purchased it. If this were to happen, Groupon would surely sink back into its downward spiral.
- Bullish Views – The bulls agree with the bears in the fact that the gains on GRPN are the result of Alibaba's large investment. However, they don't believe that Alibaba will want to sell their stake. In fact, they argue that BABA is working to build a group purchasing site as well, and that its large investment in GRPN will help it gain access to American technologies that it can bring to China to make a massive amount of money. In fact, the bulls argue that at this point, it would make sense for Alibaba to just purchase Groupon outright and at the very least, they are working to take a controlling interest in the company.
What We Can Expect To See Moving Forward
In this particular case, I'm going to have to side with the bulls. Don't get me wrong, the bears have a very valid argument and what I'm really seeing here is a coin flip with heads being slightly heavier than tails - it really could go either way. However, considering the competition that Alibaba is facing in China, it makes sense that they would make a large investment like this to get their hands on technology that will help them further their business. Do I think they're going to buy GRPN outright? No, not at all. However, I could see the company vying for a controlling interest in GRPN over time, which is just as good. With that said, I believe that the exchange of technologies and advice between BABA and GRPN will be great for both companies, and I'm expecting to see growth from each moving forward.
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What Do You Think?
Where do you think GRPN is headed and why? Let us know your opinion in the comments below!
[Image Courtesy of Flickr]