Platform Modernization And Focus On Beauty & Wellness Will Boost Future Customer Engagement

Key Takeaways

• Strategic focus on curated experiences and high-impact categories is expected to drive sustainable revenue growth and positively impact future revenues.
  
• Platform modernization and enhanced customer retention initiatives aim to improve user engagement, purchase frequency, and expand marketplace transactions.
  
• Groupon's reliance on seasonal performance and high employee turnover, combined with consumer constraints and technical complexities, threaten revenue growth and profit margins.
  

Catalysts

Operates a marketplace that connects consumers to merchants.

• Groupon's focus on building quality over quantity with curated experiences and strategic merchant partnerships is expected to lead to sustainable billing growth, impacting future revenues positively.
  
• Platform modernization, including major migrations to new infrastructure, is expected to enable faster innovation and more engaging user experiences, likely resulting in improved user retention and higher earnings.
  
• The strategic focus on high-impact categories such as Things To Do, Beauty & Wellness, and Gifting, combined with a city-by-city approach, is positioned to drive revenue growth in key markets.
  
• Efforts to enhance customer retention through improved personalization and introduction of WOW deals are expected to increase purchase frequency, thereby improving net margins.
  
• Continued strengthening of partnerships with enterprise brands for performance-based campaigns suggests potential to broaden supply, thus increasing marketplace transactions and future revenues.

Groupon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Groupon's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -12.0% today to 4.0% in 3 years time.
• Analysts expect earnings to reach $21.6 million (and earnings per share of $0.45) by about March 2028, up from $-59.0 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 38.4x on those 2028 earnings, up from -12.3x today. This future PE is greater than the current PE for the US Multiline Retail industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 0.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.89%, as per the Simply Wall St company report.

Groupon Future Earnings Per Share Growth

Risks

• Groupon's dependence on seasonal performance highlights potential vulnerabilities, especially if key buying seasons underperform. A weaker sales season could directly impact revenue and profit margins.
  
• The persistence of high employee turnover, particularly within sales, could hinder Groupon's ability to achieve stable revenue growth and maintain efficient operational execution.
  
• Despite improvements in some metrics, categories like travel and high-value goods may face headwinds due to consumer budget constraints, limiting potential revenue growth in these segments.
  
• The complexity and ongoing need for technical integrations with enterprise partners could lead to delays or missed opportunities, affecting revenue potential from these partnerships.
  
• While Groupon aims to improve customer retention and increase transaction frequency, failure to deliver significant engagement gains could restrict improvements in net margins and overall earnings.

Valuation

• The analysts have a consensus price target of $16.5 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 $21.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $536.6 million, earnings will come to $21.6 million, and it would be trading on a PE ratio of 38.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of $18.24, the analyst price target of $16.5 is 10.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.