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Why Citi Has a $19 Price Target on Groupon

Groupon’s

Groupon holiday gift card
www.groupon.com
Groupon holiday gift card

share price has fallen more than 60 percent since it went public last November.

By most accounts, it is a controversial stock in a volatile sector — and Mark Mahaney, Internet analyst for Citigroup, is fueling the fire.

He’s maintaining a “buy” rating and $19 price target for Groupon shares — meaning he thinks its shareholders can more than double their money.

Groupon’s

“We are seeing stocks in this space trade at 30 to 40 times earnings. Groupon’s now trading at 10 times [12 month] future earnings,” Mahaney told CNBC’s “Squawk on the Street.” “Yeah, I believe we have that kind of upside on this stock, or else we wouldn't have a buy on it.”

With $19 admittedly a pretty high bar, Mahaney explains the main reason for his forecast is that Citigroup has lowered next year’s earnings estimate on Groupon to between 70 and 80 cents per share.

“Given the skepticism on the stock, you don’t need to see higher earnings upside,” he said. “If they can deliver 70 to 80, this stock can move materially higher.”

Groupon’s

The one big problem for the stock, Mahaney said, is that Groupon’s earnings are dependent on the site’s user traffic — which he called “very hard to interpret.”

Currently tracked on ComScore.com , user traffic numbers for Groupon are sparse because it is a relatively young company. This may pose a risk to any analyst’s call on the stock.

“Look, if there’s a real fall off in user demand for Groupon, the stock’s not going to work,” said Mahaney.

On the other hand, Citigroup cites new offerings, such as Groupon vacation packages and a “major push” onto mobile platforms, as moves that will fundamentally benefit the company.

And then there’s the profit margins to consider.

“The big bearish skepticism, which was accurate in the past, is that Groupon would never get the 30 percent operating margins (or net profit). Well, they’ve done 50 percent two quarters in a row, which gives us confidence,” Mahaney said.

—By CNBC.com’s Jennifer Leigh Parker

Additional News: Groupon Hits All-Time Low

Additional Views: Groupon Is About to Expire: Pro

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CNBC Data Pages:

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Disclosures:

Mark Mahaney does not personally own shares of Groupon, but the company is an investment banking client of Citigroup. Within the past 12 months, Citigroup Global Markets Inc has acted as manager or co-manager of an offering of Groupon securities.

Disclaimer
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Follow Jennifer Leigh Parker on Twitter @jparker741 .

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