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Groupon (GRPN) Reportedly On Lookout For a Potential Buyer

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Groupon, Inc. (GRPN - Free Report) is searching a prospective buyer, per a Recode report. In the past month, the company’s executives and bankers have been “aggressively” pursuing various public listed companies to bid for Groupon. Recode cited “two people” familiar with the approach as their source.

Groupon once boasted a market cap more than $16 billion. The investors’ interest was renewed in the company after it launched a novel website platform of providing daily deals to online consumers. Further, the company rejected a bid of $6 billion from Alphabet’s (GOOGL - Free Report) Google, last year. This move highlighted the potential of the company.

Currently, Groupon has a market cap of $2.46 billion. The shares of the company have returned 19.4% in the past year, outperforming S&P 500’s rally of 16.4%.

Potential Buyers

Considering the plausible options, Alibaba Group Holding Limited (BABA - Free Report) is the first contender. Alibaba’s minority holding of 5.6% stake in Groupon, effective from February 2016 positions it well in bidding for this Chicago, IL- based company.

In fact, Alibaba has had significant plans for collaboration between the entities. The company had then said: “We bought a very small minority stake in Groupon in order to share ideas between U.S. and China markets. This is a passive holding and if Groupon management would like to exchange experiences with us, we are prepared to share.” Moreover, there have been rumors in the past regarding Alibaba acquiring the now ten-year old Groupon.

Notably, IAC/InterActiveCorp (IAC - Free Report) might be another potential suitor. IAC’s CEO Joey Levin is one of Groupon’s board of directors, effective from March 2017. Levin is said to have remarked, “I’ve been impressed with the management team and their strategy to attack the local opportunity and look forward to working with an engaged and talented Board in helping shape the company’s success.”

Meanwhile, there has been no indication from Groupon’s end and the rumors are likely to persist.

Financial Performance and Expectation

Groupon delivered better-than-expected first-quarter 2018 results. The company’s non-GAAP earnings of 3 cents per share surpassed the Zacks Consensus Estimate of a breakeven.

Further, revenues of $626.5 million surpassed the Zacks Consensus Estimate of $605 million. However, the figure declined 7% on a year-over-year basis (11% at FX neutral).

For the second quarter, the company expects revenues to be in the range of $630-$640 million. The Zacks Consensus Estimate is pegged at $630.8 million, representing a year-over-year decline of 4.8%.

Of late, Groupon has been trying to reduce its dependence on goods deals and is shifting focus toward local services market. This is because local services market is a high margin business while goods deals bring in high revenues but smaller margins. However, the transition is hurting the company’s revenues as evident from its first-quarter results.

To Conclude

Groupon’s accelerating consumer activities hold promise. Moreover, favorable mix of products is another positive. The company’s partnership with Grubhub and ParkWhiz along with ongoing brand awareness programs is also anticipated to boost top-line, going forward.

However, as mentioned above, shift to local services market augurs well only in the longer haul.

Zacks Rank

Groupon sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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