Market dominance and a growing product portfolio make Groupon a stock that could hit $30 per share, but its recent expansion could hurt its margins and take shares to $8, analysts argued Wednesday.
“There are hundreds of small Groupon clones. These companies are dropping like flies. The way the industry is going to shake out in a couple of years is there’s just going to be two, maybe three players in this kind of group-purchasing space,” Barrington Research analyst Jeff Houston said on “Fast Money.”
Groupon stock gained 1.6 percent to close at $24.58 per share.
UPDATE: Shares plunged 15 percent in after-hours trading to $20.74 at 7:30 p.m. ET after it missed revenue expectations by a penny.
Houston rated the stock “outperform” with a price target of $30 per share. He projected $1.6 billion in revenue for the year, 10 times Wall Street consensus.
Among his reasons for the bullish outlook were: 65 percent market share, 11,000 employees, almost 170 million subscribers and relationships with 250,000 merchants worldwide.
“One thing management said, which I think makes sense, is that there are low barriers to entry but high barriers to success,” he said. “It’s just incredibly difficult for a small start-up to replicate that.”
Rick Summer, an analyst with Morningstar, disagreed.
Among his reasons for a bearish outlook were: An “unproven” and easily imitated business model, challenges in keeping its market share and short-term advantages that were not durable or profitable.
Summer also took issue with its category mix, which includes Groupon Getaways and Groupon Goods.
“It’s a different margin profile long-term,” he said. “But more importantly, is Macy’s going to need to run a Groupon two years from now, when they’re still doing it today? We don’t see a big, repeatable business in these other new categories, and the value proposition is just substantially different.”
CORRECTION: Summer rated the stock a “consider sell,” with a price target of $8 per share.
“These guys have some incredible momentum and they’ve done a really great job thus far,” he said. “We just don’t see a $20 price on this thing.”
“Fast Money” contributor Brian Stutland of Stutland Equities remained leery of Groupon.
“I think there’s other areas of social media, networking-type areas you can get into. One of them is Google, having such low valuation and such huge cash amounts on their balance sheets to get into some of these areas. I wonder if Google becomes a competitor to Groupon,” he said.
“I’d rather stick with a good-quality, blue-chip name like that rather than taking shots on these high, overvalued type names and relying on their growth story to win over the stock shares.”
- Market Insider: Why Groupon Is Technically Insolvent
- Groupon Rallies on Ratings Anticipation
- A Look at Tech Companies With IPOs This Year
- A Look at How Some IPO Stocks Have Fared
Got something to to say? Send us an e-mail at firstname.lastname@example.org and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment, but not have it published on our Web site, send those e-mails to email@example.com.
Trader disclosure: On Feb. 8, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Kelly is long TLT; Kelly is long German bunds; Kelly is long SPY puts; Kelly is short Yen; Cortes is long Treasuries; Cortes is long SO; Cortes is long MO; Cortes is short SOHU; Cortes is short SINA; Cortes is short BAC; Cortes is short EUR; Cortes is short Silver; Weiss is long JWN; Weiss is long EUO; Weiss is long QCOM; Weiss is long DIS; Weiss is long MDRX; Weiss is long F; Weiss is long VZ; Weiss is long WLT; Weiss is long BKU; Weiss is long BKU; Weiss is long MOS; Weiss is long HAIN; Weiss is long KO; Weiss is long WLP; Weiss is long RIMM; Weiss is long ETP; Weiss is long NS; Weiss is short AAPL puts; Weiss is short AMZAN puts;
For Micheal Binetti
This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.: Ralph Lauren
Within the past 12 months, UBS Securities LLC has received compensation from this company/entity: Ralph Lauren
For Jeff Kilburg
Killburg is long (TLT)
For Colin Gillis (MP)
(CSCO) Investment banking (next 3 months): BGC Financial LP and/or its affiliates, does not expect to receive, or intend to seek, compensation for investment banking services within the next three months from all of the companies referenced within this report.
Lead or Co-manager: BGC Financial LP and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities for Cisco within the last 12 months. BGC Financial LP and/or its affiliates has not received compensation for investment banking services in the last 12 months from Cisco.
For Jeff Houston
Research analysts, including those involved in the preparation of this report, received no direct compensation in connection with the firm’s investment ban king activities. Analyst compensation, which is ma de up o f salary and bonus, is based upon numerous factors including stock price performance, quality of analysis, and investor client feedback, as well as the overall profitability of the firm, which is impacted by all of the firm’s business activities and includes, among other things, institutional equity trading and investment banking services.
Investment banking services, as defined under NASD Rule 2711, includes, among other things, acting as an underwriter in or as a m ember of the selling group in a securities underwriting. The analyst responsible for this re port, Jeffrey L. Houston, CF A or a member of the analyst’s ho use hold does not own shares of the common stock of this company. N ASD Regulation ha s adopted rules that prohibit research analysts from trading in securities of covered companies during specified time periods before and after the publication of research reports.
For Rick Summer
For Matthew Czepliewicz (JB)
(MS) Collins Stewart produces different types of research product including, among others, fundamental equity analysis (which may contain fundamental and/or trading recommendations), technical analysis, Quest, and Investment Companies analysis. Recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies or otherwise; it is possible that individual employees of Collins Stewart have different perspectives to this publication. No specific disclosures.