AI Integration And Mobile Commerce Will Expand Experiential Opportunities

Key Takeaways

• Platform modernization, AI-driven experiences, and hyperlocal personalization are expected to significantly boost user engagement, new revenue streams, and profitability.
  
• Shifts to experiential, digital-first consumption and a stronger balance sheet position the company for increased deal volume and enhanced shareholder returns.
  
• Groupon faces declining relevance and revenue growth due to rising competition, merchant dissatisfaction, structural market shifts, and weak differentiation and technology investment.

Catalysts

Operates a marketplace that connects consumers to merchants by offering goods and services at a discount in North America and international.

• Analyst consensus expects platform modernization and curated experiences to drive sustainable growth, but accelerating advances in AI search integration and voice-driven commerce could allow Groupon to leapfrog competitors, multiplying user engagement and conversion far above current estimates, resulting in sharply higher billings and revenue growth over the next three years.
  
• Analysts broadly agree that category focus and hyperlocal strategies will spur billing growth, but the company's rapid expansion into over 200 micro-categories, combined with granular personalization leveraging machine learning, is positioned to unlock new, recurring revenue streams and dramatically expand net margins through deeper customer and merchant relationships.
  
• The accelerating shift among millennials and Gen Z toward digital-first experiential consumption, coupled with Groupon's unique inventory and strong mobile platform, positions the company for material outperformance in transaction volumes and frequency as these demographics continue to mature into peak spending years.
  
• Strong positive free cash flow alongside a newly simplified capital structure gives Groupon flexibility to recommence share repurchases and pursue disciplined, accretive M&A, enabling outsized earnings-per-share growth not currently accounted for by market expectations.
  
• Partnership-focused sales transformation and increased enterprise adoption, as merchants seek performance-based acquisition tools in the evolving omnichannel retail environment, could substantially boost Groupon's take rate and overall marketplace liquidity, materially lifting both revenue and gross profit.

Groupon Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Groupon compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Groupon's revenue will grow by 12.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.8% today to 15.8% in 3 years time.
• The bullish analysts expect earnings to reach $108.5 million (and earnings per share of $2.58) by about August 2028, up from $-8.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, up from -170.7x today. This future PE is greater than the current PE for the US Multiline Retail industry at 18.3x.
• Analysts expect the number of shares outstanding to grow by 1.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.8%, as per the Simply Wall St company report.

Groupon Future Earnings Per Share Growth

Risks

• The increasing ability of brands and merchants to develop direct-to-consumer relationships through digital technology threatens Groupon's intermediary role, potentially reducing user growth and lowering future revenue and gross billings.
  
• The persistent dissatisfaction among merchants with Groupon's commission structure and questions about return on investment can lead to ongoing merchant attrition, directly pressuring take rate and constraining net margin expansion.
  
• Rising competition from integrated platforms like Amazon and Walmart, which have expanded loyalty and buy now, pay later features, may capture the most deal-seeking consumers and fragment Groupon's core audience, exerting downward pressure on user engagement and gross billings.
  
• Structural declines in local brick-and-mortar businesses and increased consumer preference for more personalized, community-driven or creator-led experiences threaten Groupon's supply of high-quality deals, reducing inventory and limiting the relevance of broad-based offers, which negatively affects transaction frequency and revenue growth.
  
• Ongoing underinvestment in platform technology and lack of meaningful product differentiation compared to cashback, loyalty or super-app competitors could stall improvements in user experience, hinder operating leverage, and lead to sustained earnings weakness despite short-term growth in specific segments.

Valuation

• The assumed bullish price target for Groupon is $47.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Groupon's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $47.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $685.4 million, earnings will come to $108.5 million, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $36.89, the bullish analyst price target of $47.0 is 21.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.