Shares of Internet coupon purveyor Groupon (GRPN) are up 73 cents, or 7.5%, at $10.52 after Stifel Nicolaus’s Jordan Rohan raised his rating on the stock to Hold from Sell, writing that investors have discounted multiple risks, including the lockup expiration that transpired last Friday, and accounting revisions disclosed back on March 30th.
The sentiment has been so negative from those issues, writes Rohan, that the stock could benefit “if the fundamentals shift slightly.”
The current price is within Rohan’s “fair value” estimate of $8 to $12, he writes, based on a multiple of 10 times 2012 and 2013′s projected Ebitda.
One positive, in his view, is that marketing dollars are going to take less of a bite out of profits this year:
We believe there is enough operating leverage that the risk of a zero-profitability scenario is remote. Increased marketing efficiency is largely responsible. We estimate that Groupon will spend only 22% of revenues on marketing in 2Q12 vs. 54% a year ago.
Rohan holds out the prospect the company will find further spurs to its business, including from owning its own “deals”:
If Groupon can move into direct eCommerce, and our research shows that the company is moving in that direction, then the fourth quarter estimates could be too low. Groupon’s 10-Q indicates that the company is acting as a direct online merchant — selling O&O inventory. This has its risks, to be sure. But the revenue carries a 100% take rate and could present upside to our model. Direct eCommerce initiatives are broader national offerings (entire U.S. email list) and not as labor/commission intensive as local sales. Groupon’s daily deals business is profitable on its own merits and may enable Groupon to extend into higher margin ancillary businesses over time.
Rohan is modeling $2.46 billion in revenue this year and 25 cents a share in profit. That is �ahead of the Street consensus of $2.397 billion and 19 cents a share.
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