Groupon Rallies Again on Morgan Stanley Upgrade

By Neil Vidyarthi 

Groupon, who had been suffering from a steady decline since February, has rallied for the second day in a row on the news of an upgrade from Morgan Stanley analyst Scott Devitt. The company faced some heat as people questioned whether there were accounting problems with the way the company was handling returned Groupons. In this market, investors run when they hear about anything related to accounting, so many analysts estimated the stock would bounce back after the murmurs, but false starts in mid-May and early June proved to be short lived.

Scott noted that Groupon has done the legwork to get the headstart in a lucrative industry. He foresees them continuing to succeed and innovate in the local deals space.

“Groupon has emerged as the leading local e-commerce company in an industry with significant  barriers to scale. Its advantage due to scale (largest  merchant and customer base) and technology (8 acquisitions year to date) has enabled it to accelerate North American revenue growth while improving its margins.”

Forbes reports that Devitt is positive on four key debates about Groupon:

  • Preserve its competitive position as local e-commerce leader…
  • Maintain a ~40% take rate within daily deals segment…
  • Continue to grow revenue while expanding margins and…
  • Avoid deal fatigue by continuing to improve targeting and personalization.

Groupon does have massive potential, and recent moves to shake up their organization and move into Asia look promising. The question is whether they are really the only game in town, or whether a retailer like Amazon could replicate this model and wipe them out. Other companies have certainly tried but Amazon’s sales team, liberal policies and effective – if not perfect – web technology have kept them on top until now.

Forbes is currently up 9% or $0.90 today, to $10.96.