Credit Suisse: Groupon's Marketing Spend A 2017 Catalyst

Groupon Inc (NASDAQ: GRPN) reported a sequential decline in North America gross profit growth. The company’s turnaround would likely be “gradual in nature,” Credit Suisse’s Paul Bieber said in a report. He assumed coverage of Groupon with a Neutral rating and a price target of $4.

Disappointing Q3

The company reported a 500 basis point quarter-over-quarter decline in its North America gross profit growth, driven by disappointing gross margins and local take rates.

Bieber estimated the consolidated gross profit and North America gross profit growth for 2017 at 1 percent and 4 percent year-over-year, respectively. He expressed concern regarding the 35 percent North America local take rate remaining “high relative to take rates at other marketplaces and potentially high relative to alternative local advertising options.”

Marketing Spend

Bieber said Groupon’s shares to remain range-bound until there is visibility on the marketing spend in 2017, given the incremental marketing spend of $150 million in 2016.

The magnitude of the marketing investment in 2017 could be “a significant sentiment swing factor” in the first half of the year. “Also, recent marketing investments may drive near-term growth, but it remains to be seen whether marketing investments can sustain enduring growth given Groupon's history of outsized marketing investments,” the analyst wrote.

At last check, shares of Groupon were down 1.14 percent at $3.48.

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