Tuesday, August 21, 2012

Groupon Inc (GRPN) Showing High Volatility Amid Analyst Rerating

Groupon Inc (NASDAQ:GRPN) stock has been down downgraded by Barclays Capital to Underweight from Overweight. The brokerage has also cut its price target on the stock citing slowing down in its daily deals business.

The shares of GRPN gapped down and made another record low of $4.34, but late morning the stock bounced back to as high as $4.78 – 10% recovery. However, the stock once again retreated and was recently down 2.40% to $4.54.

"The sale of products or "Groupon Goods", which practically didn't exist two quarters ago and represented an immaterial amount of first-quarter sales, represented the vast majority of incremental sales growth in the second quarter," Barclays analyst Mark May said.

A continuation of this trend could hurt Groupon's margin profile, he added.

Groupon Goods was launched in the third quarter of 2011, but it is low margin business compared to the daily deals that it offers, that is its core activity. The daily discounts that it offers to online customers are a big attraction as these discounts are offered on restaurants, spas and salons. The revenue is split between Groupon and the business.

Can GRPN Rebound? Find Out Here

Under Groupon Goods the company buys products in bulk at a discount and sells them to customers at higher prices.

The economic recession especially in the Eurozone has had an adverse impact on the company. With Internet giants such as Google and Amazon also getting into the business competition for Groupon is set to intensify.

Barclay's May added that slowing customer growth could increase Groupon's marketing costs, and slashed his price target on the company's stock to $4 from $15.

Reports about certain large investors selling their holdings in the company after its IPO in November 2011, has also triggered a wave of selling in the stock, which plumbed new lows on Tuesday.

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