Forget Dismal Earnings, Groupon Still a Buy: Analyst

After Groupon reported a quarterly loss in fourth quarter earnings that disappointed the street, one analyst sees long term value in the daily deals site and maintains his "buy" rating and $9 price target on the stock.

"We recently upgraded the stock based upon the turnaround potential," said Arvind Bhatia, managing director at Sterne Agee. "What we saw last quarter was demand re-acceleration, which I think got lost in the noise in the quarter. They clearly missed the profit expectations, but the 25 percent sequential increase in demand, to me, was a big positive."

Bhatia said the fourth quarter will be the "trough quarter" for the company, with "nice profit recovery" later. Bhatia bases his thesis on an international turnaround that will bring the best practices of the United States operations to Groupon sites abroad. "Most things internationally have been done manually, and the U.S. playbook needs to be applied to these other geographic areas," he said.

In the first and second quarter of 2013, Bhatia said, he expects to see "signs of a turnaround internationally. It might be painful in the near term, but we see long-term positive potential. Fundamentally the demand is there and profitability has to show up in the coming quarters."

On CEO Andrew Mason's ability to continue at the helm of the company, Bhatia doesn't think his future should factor significantly in an investment decision. "As far as I'm concerned, this company has a pretty good board and they will eventually find the right people if Andrew is not the right guy. It's not necessarily an important part of my thesis at this point."

— By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from "Squawk on the Street" @ToscanoPaul


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