Rising Privacy Concerns And Aging Tech Will Erode Market Share

Key Takeaways

• Increased regulatory hurdles, platform competition, and merchant dissatisfaction threaten to weaken Groupon's user engagement, margin profile, and relevance in the discount marketplace.
  
• Aging technology and rising competition from new discount models risk eroding Groupon's customer base, competitive advantage, and future profitability.
  
• Strategic marketplace transformation, tech enhancements, and focus on local experiences and merchant partnerships position Groupon for improved user growth, retention, and long-term profitability.

Catalysts

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

• Rising data privacy regulations and growing consumer reluctance to share personal information threaten to undermine Groupon's ability to target and personalize deals, putting long-term pressure on user engagement and advertiser effectiveness, which could significantly reduce future revenue growth.
  
• The rapid emergence of all-in-one digital ecosystem platforms like Google, Apple, and Meta is likely to erode consumer mindshare and time spent on standalone deal sites such as Groupon, leading to a shrinking active user base and declining billings over time.
  
• Declining retention and acquisition of local merchants, driven by merchant dissatisfaction with ROI and persistent fee compression, are expected to intensify, suppressing topline revenue and further compressing gross margins in future years.
  
• Ongoing challenges with aging technology infrastructure and potential underinvestment in core platform capabilities risk degrading the user experience and weakening Groupon's competitive position, leading to higher customer churn and rising operating expenses that will pressure net margins and earnings.
  
• Escalating competition from alternative discount models, such as direct-to-consumer promotions, social media influencers, and hyperlocal marketing apps, is likely to reduce the relevance of traditional deal aggregation, causing Groupon's share of the discount marketplace ecosystem to dwindle and putting downward pressure on future profitability.

Groupon Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Groupon compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Groupon's revenue will grow by 8.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -1.8% today to 10.9% in 3 years time.
• The bearish analysts expect earnings to reach $68.7 million (and earnings per share of $1.14) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, up from -152.6x today. This future PE is lower than the current PE for the US Multiline Retail industry at 18.0x.
• 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 8.71%, as per the Simply Wall St company report.

Groupon Future Earnings Per Share Growth

Risks

• The ongoing strong double-digit growth in global billings, with North America Local Billings up 20 percent year-over-year and International Local Billings up 15 percent, demonstrates sustained demand and the successful execution of Groupon's marketplace transformation playbook, which could support revenue and gross billings growth over the long term.
  
• Significant investment and progress in AI and SEO integration have allowed Groupon to benefit from emerging traffic sources while maintaining steady performance in organic search, even as other companies face headwinds, indicating that the platform's user acquisition and engagement could remain robust and drive long-term earnings growth.
  
• The strategy of deepening merchant partnerships across more than 200 micro categories and tailoring the customer experience with enhanced technology is leading to stronger relationships with both local businesses and national enterprise partners, which may result in higher merchant retention and increased marketplace liquidity, positively impacting future revenue and margins.
  
• Groupon's proactive balance sheet management, evidenced by recent refinancing and the reauthorization of a substantial share buyback program, provides flexibility to allocate capital for shareholder value creation or pursue strategic M&A, which could support share price appreciation through enhanced earnings and financial stability.
  
• The company's focus on the experience economy and successful expansion into high-growth verticals like Things To Do, combined with accelerated efforts in influencer and brand marketing, positions Groupon to benefit from long-term secular trends favoring digital commerce, local experiences, and omni-channel retail, which are likely to improve topline growth and net profitability.

Valuation

• The assumed bearish price target for Groupon is $19.0, which represents the lowest 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 more bearish 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 $19.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $629.1 million, earnings will come to $68.7 million, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $32.98, the bearish analyst price target of $19.0 is 73.6% 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.