How Much Groupon Might Actually Fetch in a Buyout

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Shares of Groupon Inc. (NASDAQ: GRPN) have popped handily on Monday on word that the “daily deals” website has been contacting other companies to drum up interest in acquiring the company. While the stock was up almost 8% in late afternoon trading, the reality is that there was a higher level of enthusiasm at the opening bell than there has been for the rest of the trading day.

24/7 Wall St. was curious to see just how much Groupon might actually fetch from an acquirer. Unfortunately, some shareholders might be disappointed by the price. The report from Recode over the weekend noted that executives and representatives have recently stepped up efforts to lure in possible buyers. At this point, it’s not entirely clear if they have any buyers even remotely interested in acquiring the company.

After Groupon shares closed at $4.36 on Friday, the stock was up 7.8% to $4.70 with about 90 minutes to the market’s closing bell on Monday. Excluding Monday’s move, Groupon shares were down about 15% in 2018 but up about 18% over a year ago. Still, the more than 50 million shares traded late in the day is already over seven times normal trading volume.

The current consensus analyst target price from Thomson Reuters has been more or less flat at $5.61 for the past month. That target price was $5.46 as of 60 days ago and $5.31 some 90 days ago. While that is a climbing consensus target price, something that many investors want to see, it is not really an aggressive move against expectations.

It was just a quarter earlier that analysts on Wall Street were really pointing to Groupon as “dead money” for investors.

Back on May 10, UBS raised Groupon to Neutral from Sell after a stronger than expected earnings report.

Also in May, Cowen reiterated its Market Perform rating and $5.75 price target. The company noted that management comments suggested that their North American business should benefit from an improving G+ impact and better inventory. The company also indicated that Europe remains in the early stages of a long-term product evolution.

And Jefferies also issued a report in May, after earnings, noting the good earnings print but cautioning that Groupon’s story remains unchanged. The firm had a Hold rating but raised its target to $5.50 from $5.00.

Gabelli, a firm that specializes in hunting for value and special situations for mergers and the like, reiterated in May that Groupon was a best idea pick. The firm had a Buy rating and its so-called private market value was up at $9.00. The firm did not tout a buyout as the main reason, but it noted that Groupon is well-positioned to lead in the local niche as the online-to-offline transition accelerates. The firm said then that it expects the strategic importance of this space to increase over the next several years, with free cash flow accelerating from $200 million in 2018 to $345 million by 2022.

As far as the consensus estimate is concerned, Groupon is expected to have earnings per share of $0.24 in 2018—rising to $0.27 in 2019 and $0.32 in 2020. That’s a current valuation after the pop of about 19.5 times this year’s expected earnings, followed by valuations of 17.4 times next year’s earnings and almost 15.0 times expected 2020 earnings. Those are not expensive ratios, but the dead money status from many analysts and from the trading history of the past two years sure seems to point to a lack of enthusiasm that Groupon is ready to keep surprising to the upside over and over. That still remains to be seen.

At $4.70, Groupon shares have a 52-week trading range of $3.60 to $5.99, and its market cap is $2.67 billion. At the end of March, its cash and investments level was $855 million, but the total current assets of $896.7 million compared against $857.9 million in total current liabilities.

It’s hard to see Groupon fetching any mega-premium here, considering that the stock has been somewhat in the “dead money” category for about two years. It also no longer matters that Groupon’s IPO price of $20 from 2011 was once the going price.