AI And North American Momentum Will Balance Risk And Reward

Key Takeaways

• Overestimation of lasting revenue and user growth may overlook risks from changing consumer behaviors, competitive pressures, and uncertainties around AI-driven search benefits.
  
• Reliance on cost optimization and platform enhancements could be undermined by persistent discount-focused branding, shifting privacy norms, and increased competition reducing future margins and retention.
  
• Strategic AI integration, core category growth, and operational improvements enhance user engagement, scalability, and financial flexibility, positioning Groupon for sustained revenue and earnings expansion.

Catalysts

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

• Investors may be overestimating Groupon's future revenue growth by assuming AI-driven and organic traffic increases will lead to a sustained, material rise in transaction volumes, even though current gains are off a small base and the long-term impact of AI search and changes in consumer search behavior remains uncertain.
  
• The market could be pricing in ongoing improvements in merchant partnerships and local category expansion without accounting for the risk that a continued consumer shift toward direct-to-merchant purchases and digital-first retail may limit customer engagement and gross billings over time, putting downward pressure on top-line growth.
  
• Some investors may expect that enhanced platform capabilities and micro-category customization will drive higher user retention and lifetime value, potentially boosting net margins, but these benefits could be undermined if privacy regulations or increased preference for subscription models reduce the effectiveness of Groupon's personalized offers.
  
• The valuation might reflect sustained margin expansion driven by recent cost optimization and product enhancements, overlooking the possibility that persistent brand association with deep discounting, and challenges in diversifying beyond the daily deals model, could constrain revenue growth and increase customer churn.
  
• Enthusiasm about technology investments (such as integrating with AI partners and mobile app improvements) may not fully account for intensifying competition from social platforms, local merchant apps, and loyalty programs, which could erode market share and margin gains, ultimately limiting earnings growth.

Groupon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Groupon's revenue will grow by 11.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.8% today to 14.4% in 3 years time.
• Analysts expect earnings to reach $96.3 million (and earnings per share of $2.54) by about August 2028, up from $-8.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, up from -170.7x today. This future PE is lower than the current PE for the US Multiline Retail industry at 17.6x.
• 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

• Accelerating AI-generated traffic and strategic platform enhancements position Groupon to capture a growing share of AI-driven commerce, enabling new customer acquisition channels and improved merchant reach, which can propel revenue growth and user engagement.
  
• Robust recovery and expansion in the core local category-particularly with North America Local Billings up 20% and International Local growth of 15% year-over-year-demonstrate a strong operational turnaround and suggest scalability of the marketplace, supporting long-term revenue and earnings expansion.
  
• Continual investment in marketplace transformation, product innovation (including mobile and personalization improvements), and granular micro-category management deliver more tailored merchant and user experiences, likely increasing customer lifetime value and optimizing net margins.
  
• Improved merchant relationships, data-driven sales approaches, and evidence of higher voucher redemption rates drive repeat business and higher user retention, supporting more stable and recurring revenues for the platform.
  
• Successful refinancing and simplification of the capital structure, combined with substantial available capital for share buybacks and disciplined M&A, enhance financial flexibility to invest in growth initiatives and return capital to shareholders, supporting long-term earnings and potentially boosting share price.

Valuation

• The analysts have a consensus price target of $30.0 for Groupon based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $671.1 million, earnings will come to $96.3 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $36.89, the analyst price target of $30.0 is 23.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.