Groupon Shares Slump as Wedbush Sees Company as Takeover Prospect

Groupon shares touch a record low as Wedbush sees the discount provider as a takeover candidate. The firm says a merger with Yelp and IAC managing the combined entity makes sense.
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Groupon  (GRPN) - Get Report shares slumped as Wedbush Securities analyst Ygal Arounian said the chances for a sale of the discount provider have risen, after it reported worse-than-expected fourth-quarter earnings and said it would stop selling goods.

At last check Groupon shares traded at $1.72, down 44%. That's a record low for the stock, according to Bloomberg data. In the year through Tuesday the stock had dropped 13%.

“We see the fourth-quarter results (and the exit of goods) as increasing the likelihood of a takeout/merger,” the analyst wrote in a report.

Arounian has a merger partner in mind: “Our view is that Groupon and Yelp  (YELP) - Get Report would make a value-creating combination and that IAC  (IAC) - Get Report can be a trusted steward to manage.” 

Yelp is the San Francisco business directory/review service. Analysts have cited the New York media-services group IAC/InterActive as a potential buyer of Yelp.

As for the earnings report, Groupon said Tuesday that adjusted earnings per share totaled 7 cents in the fourth quarter, less than half analysts’ consensus forecast of 15 cents, according to Refinitiv. 

Revenue registered $612 million, 14% below analysts’ estimate of $709 million.

The earnings showed “weakness across the board,” Arounian said.

Groupon also said Tuesday that it would halt sales of merchandise by year-end, exiting what it called “a fiercely competitive, and in some cases economically irrational, retail landscape.”

Arounian supports the exit, but the merchandise operation “still does drive some traffic [to the company], so it is incumbent on Groupon to replace that traffic through marketing and moving impressions.”

He rates the company’s stock neutral and has a price target of $3.