How Merrill Lynch Views Groupon After Earnings

Groupon Inc. (NASDAQ: GRPN) reported earnings and issued guidance on the current quarter after the markets closed on Tuesday. Needless to say, analysts and investors alike did not appreciate what they heard. As a result, analysts dropped their ratings and targets on the stock while investors initiated a large sell-off. In a nutshell, the updated guidance was considered significantly weaker and shares dropped over 25% in the after-hours session.

Along with this stifling blow, Groupon separately announced that its chief executive officer, Eric Lefkofsky, would be stepping down. Chief Operating Officer Rich Williams will be assuming the role of CEO, while Lefkofsky will return to the role of chairman, effective immediately.

For the most part, third-quarter earnings were in line with Street estimates, but the big surprise came from what the company had to say about what to expect in the fourth quarter.

In terms of guidance, it announced that it expects adjusted results to range from a loss of $0.01 to earnings of $0.01 per share with revenue in the range of $815 million to $865 million for the fiscal fourth quarter. Consensus estimates call for $0.07 in earnings per share on $956.83 million in revenue.

Merrill Lynch threw its hat in the ring with other analysts on Groupon and issued a downgrade to an Underperform rating with a $2.75 price objective. The firm expects sentiment to remain negative until Groupon demonstrates that the marketing investments are driving higher growth, which Merrill Lynch doesn’t expect until late 2016 or 2017, or Groupon delivers on improved international performance and profitability. Groupon is an investment on several positive Internet industry growth trends, including the migration of local commerce to online channels and growth in usage of mobile devices and apps.

A few other analysts weighed in on Groupon after its earnings:

  • Wells Fargo downgraded it to a Market Perform rating from Outperform.
  • Piper Jaffray downgraded it to Neutral from Overweight and lowered the price target to $2.50 from $7.50.
  • RBC has a Sector Perform rating and lowered its price target to $4 from $6.
  • Brean Capital has a Buy rating and lowered its price target to $5 from $8.
  • B. Riley reiterated a Neutral rating with a $2.50 price target.

Shares of Groupon were trading down nearly 29% to $2.87 late Wednesday morning, with a consensus analyst price target of $5.57 and a 52-week trading range of $2.78 to $8.43.

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