Mixed 3rd-Quarter Results for Groupon

Groupon GRPN reported mixed third-quarter results as the company missed our internal estimate and consensus on revenue, while it beat on the bottom line. The firm's restructuring which includes less focus on the traditional voucher business is progressing a bit more slowly than expected. Decline in revenue from less vouchers was only partially offset by the faster growing card-linked offers made available through Groupon+ and online bookings of local events and services. Continuing cost control, mainly on marketing, again helped the firm post a profitable quarter with higher operating margin. However, we note that without a network effect economic moat source, Groupon will need to more aggressively invest in acquiring users and sign new merchants to possibly return to revenue growth in 2019 and accelerate growth through 2022. In our view, the higher marketing costs likely will limit Groupon's margin expansion during the next five years. We did not make significant changes to our model as management maintained its full-year adjusted EBITDA guidance. We are maintaining our $4.60 per share fair value estimate on Groupon. The stock is now trading in 4-star territory as it declined more than 10% after the release of mixed third-quarter results, creating an attractive entry point for this no-moat and very high uncertainty name.

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