Groupon Inc (NASDAQ:GRPN) shares skyrocketed 28% Tuesday after the daily deals giant reported strong second-quarter results, with revenue of $756MM, 6% above Street, and EBITDA of $34MM, 48% above Street.
In reaction, RBC Capital analyst Mark Mahaney raised his price target for the stock to $4.00 (from $3.00), but reiterated an Underperform rating on the stock.
Mahaney commented, “There were some positive data points in the June Quarter print and fundamentals are improving and better than expected. So why are we sticking with a Sell rating? 1) Fundamental trends – We still question the sustainability of these trends and would like to see more than one quarter of fundamental improvement; 2) Competitive threats have not changed- we see a growing Local Presence by all three of the largest Internet Platforms– Amazon, Facebook, and Google, which means the cost of a successful turnaround could becoming more expensive; & 3) Lingering Red Flags– Specifically NA Local Revenue Take Rate dipped to its lowest level ever (33.9%), putting into question the sustainability of the NA Local Billings growth.”
“Finally, we view current valuation as somewhat aggressive for a very uncertain turnaround play. We would wait for sustained evidence of a fundamental turnaround before considering becoming constructive on GRPN shares,” the analyst added.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a yearly average return of 20.3% and a 66% success rate. Mahaney has a -14.1% average return when recommending GRPN, and is ranked #9 out of 4087 analysts.
Out of the 19 analysts polled by TipRanks, 4 rate Groupon stock a Buy, 11 rate the stock a Hold and 4 recommend Sell. With a downside potential of 16.4%, the stock’s consensus target price stands at $4.03.