After Groupon Inc (NASDAQ:GRPN) shares were sent plunging following the company’s earnings release and Netflix, Inc. (NASDAQ:NFLX) recently filed its 10Q with a billion dollar new debt offering, analysts are weighing in on these internet giants. One of Wall Street’s top analysts highlights his bearish concerns for the online deal maker whereas another analyst has accordingly updated his model estimates from a neutral standpoint. Let’s dive in:
Groupon shares are toppling 20% on back of the company’s quarterly earnings, which have top analyst Mark Mahaney at RBC Capital questioning “deal sustainability” for the company. As such, despite revenue and earnings beats coupled with bolstered guidance, the analyst remains mostly bearish and subsequently reiterates an Underperform rating on shares of GRPN with a $4 price target, which represents just under a 7% downside from current levels.
For the third quarter, GRPN posted revenue of $721MM, outclassing both the analyst’s projection of $712MM as well as the Street’s expectation of $711MM. Moreover, EBITDA of $32MM, though a 43% decline in year-over-year still outperformed the analyst’s estimate of $27MM as well as consensus of $29MM. Gross billings of $1.43 billion fell “in-line with expectations.” For 2016, the company boosted it revenue guide from a range of $3.0 to $3.1 billion up to $3.08 to $3.15 billion as well as upped its EBITDA guide from a range of $140 to $165MM to $150 to $165MM.
Mahaney opines, “We viewed Q3 EPS results as mixed, with the Revenue & EBITDA Beats, the acceleration to 10% North America (NA) Local Billings & the strong 1.2MM NA Customer Adds offset by deceleration in NA Total Billings and Revenue and a very low NA Local Revenue Take Rate. We still see substantial challenges.”
While the analyst notes “some clearly positive data points” in the online deal maker’s financial third-quarter results, he also underscores various concerns that bolster his overall bearish perspective. First, the analyst explains in regards to fundamental trends, “We question the sustainability of Groupon’s trends.”
Second, when considering an atmosphere of rising competition, Mahaney believes, “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 GRPN turnaround could becoming more expensive.”
With regards to “lingering red flags,” “The NA Local Revenue Take Rate dipped to its lowest level ever. Finally, we view current valuation […] as still aggressive for an uncertain turnaround play. We would wait for sustained evidence of a fundamental turnaround before considering becoming constructive on GRPN shares,” Mahaney concludes.
Mark Mahaney has a very good TipRanks score with a 70% success rate and he stands at #3 out of 4,188 on the analyst leaderboard. Mahaney garners 20.4% in his annual returns. However, when recommending GRPN, Mahaney faces a loss of 14.0% in average profits on the stock.
TipRanks analytics exhibit GRPN as a Hold. Based on 13 analysts polled in the last 3 months, 3 rate a Buy on GRPN, 8 maintain a Hold, while 2 issue a Sell. The 12-month price target stands at $5.13, marking a nearly 17% upside from where the shares last closed.
The Netflix filed its 10Q on October 18th and $1 billion offering in new debt with an annual interest rate of 4.375%, which priced on October 24th. In reaction, analyst Barton Crockett at FBR updates his model for the streaming giant, adjusts international ARPU and global cost assumptions, and reiterates a Perform rating on NFLX with a price target of $100, which represents a 21% downside from where the shares last closed.
The analyst expresses, “Our previous model had Netflix issuing $1 billion in debt in 4Q16, but we estimated that it would bear an interest rate of 5.875%. The lower rate leads to a $15 million improvement in interest expense in 2017.”
“Our 4Q16 revenues and adj. EBITDA are unchanged at $2,473 million and $184.8 million, respectively. Our 4Q16 adj. EPS estimate rises one cent to $0.15. For 2017, we see revenues of $11,068 million, $242M million better than our previous estimate on higher international ARPU assumptions. However, we take our adj. EBITDA down $54.4 million to $1,127 million and adj. EPS down $0.06 to $1.15, on higher technology and development and G&A costs in 2017. Our SOTP based price target is unchanged,” surmises Crockett.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Barton Crockett is ranked #722 out of 4,188 analysts. Crockett has a 51% success rate and realizes 3.1% in his yearly returns. When recommending NFLX, Crockett yields 12.0% in average profits on the stock.
TipRanks analytics demonstrate NFLX as a Buy. Based on 37 analysts polled in the last 3 months, 19 rate a Buy on NFLX, 11 maintain a Hold, while 7 issue a Sell. The consensus price target stands at $123.41, marking a 2% downside from where the stock is currently trading.