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.”
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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;
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