Conviction Sell Call for GroupOn a Bit Late

Sep 17, 2012
J. Webster
Comments Off on Conviction Sell Call for GroupOn a Bit Late

Yes, this conviction sell call comes with GroupOn down 80% from the IPO price. Just once I’d like to see an “analyst” put a stock on the conviction sell block when it actually opens on the stock market the first day. That would be impressive, this call, just seems a bit too late. GroupOn, on their IPO, opened up close to $26 a share. It now trades for less than $5.

Groupon’s losses on Friday came after Evercore Partners analyst Ken Sena downgraded shares of the largest daily deal company and set a $3 price target on the stock.

Groupon missed Wall Street’s second-quarter revenue expectations earlier this week. Gross billings, which reflect the money Groupon collects from consumers who buy its daily deals, fell during the second quarter, the company also said.

“We see potential for future cash burn assuming billings declines persist,” Sena wrote in a note to investors.

Groupon has more than $1 billion in cash and the company generates a lot of working capital because it collects money upfront from customers who buy its vouchers and it then takes at least 30 days to pay merchants their share.

However, if Groupon’s growth slows, it may take in less money upfront, while still having to pay merchants from prior deals, Sena said.

A 5 percent annual decline in gross billings could turn Groupon’s working capital benefit against the company, suggesting “cash burn,” the analyst added.

“The company stands to find itself in a situation where they are paying out merchants on a larger (prior) business scale relative to the cash they are able to collect from current consumers,” Sena wrote.(Yahoo News)

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