The Stars Align For Groupon Stock

If any stock out there is playing by their own rules this week it’s Groupon (NASDAQ: GRPN). Usually, a drop of 44% in year-on-year revenue means bad things for a stock, but not so for the Chicago headquartered company. Having spent much of the past year steadily eating into the damage from March’s crash, shares have shot higher in the past few sessions to hit their pre-COVID levels for the first time.

This jump came despite what would for many companies be a painful earnings report. But Groupon’s Q4 numbers, released after Thursday’s session last week, was a reminder that Wall Street is nothing if not forward-looking. Even though revenue was done close to 50% on the year, it was still higher than expected while EPS was firmly in the black. The big surprise came in the company’s adjusted EBITDA, which at $40 million was a full 40% higher than the consensus.

The overall theme was one of Groupon’s core business continues to recover much faster than expected. This shouldn’t be all that surprising for investors, however. In August, the company’s Q2 numbers knocked it out of the park with EBITDA coming in at a marginally positive $1.3 million, well above the forecasted $44 million loss. That same report printed a billings number that was 60% higher than what analysts were expecting. Q3’s numbers in November also caught analysts asleep at the wheel, with a huge beat on EPS reported.

Consistent Surprises

For investors in Groupon however, they won’t be complaining that the so-called experts are continuing to underestimate the growth story in play. It means more potential surprises to the upside are on the cards. And these are the best kind of surprises as they remove both uncertainties and the worst-case scenarios which can together act as a serious weight on a stock’s price. The 70% jump we’re seeing since last week’s report shows that Wall Street is working hard to do some fresh price discovery.

Interim CEO Aaron Cooper struck an unsurprisingly upbeat tone with the report; "despite the challenges of 2020, we successfully implemented our restructuring plan and established a path for growth, and as a result, we are well-positioned heading into 2021. Our fourth-quarter results tell the story of our opportunity and included sequential consolidated revenue and gross profit growth, as well as sequential consolidated Local revenue growth. We are also excited to announce that we exceeded our inventory test goals in our test markets. Looking ahead, we believe we will benefit from both COVID-19 recovery and strong execution

of our growth strategy focused on expanding our inventory and modernizing our marketplace.”

Looking Ahead

This will be music to the bulls’ ears and should rightly have any remaining bears getting nervous. We’ve already seen one sell-side heavyweight throw in the towel and more are sure to follow. Only yesterday morning, JPMorgan removed their Underweight rating on the stock. While they stopped short of moving it to an out-and-out Buy or Overweight rating, the new Neutral branding has done wonders already.

Shares had popped 24% on Friday in the initial aftermath of the report but they soared close to a further 40% yesterday off the back of the upgrade. Analyst Douglas Anmuth was particularly bullish on the success of the inventory test that CEO Aaron Cooper also referred to, and believes the company’s EBITDA is their strongest selling point right now. In a note to clients he said “overall, we are encouraged by GRPN’s efforts here as it looks to build inventory and modernize the marketplace."

It took a while but the recovery story in Groupon is well and truly underway. Shares have a couple of solid earnings reports behind them and as economies continue to roll back restrictions and open up fully there’s every reason to think this rally is only getting started.