We have updated our price target on Groupon, Inc. (Nasdaq: GRPN) (“Groupon” or “the Company”) based on the Company’s new disclosure of a 2.4% ownership stake in the European payments company SumUp. We previously called on Groupon to update the market on its stake following a report by Bloomberg News indicating that SumUp was considering a capital raise of more than 500 million Euros at a valuation of about 20 billion Euros ($22.5 billion).
In our initiation report, we stated that it viewed Groupon as a misunderstood company, which had been wrongly left for dead due to an antiquated bear thesis and apathetic sell-side. In particular, we stated that market participants had completely overlooked the sizable value of Groupon’s investment in SumUp. At the time, we estimated that Groupon held a “mid-single digits” ownership stake in SumUp.
We believe that Groupon’s public disclosure of its stake in SumUp coupled with the recent news about SumUp’s proposed funding round confirms that the investment has tremendous value. With any lingering conjecture put to rest, investors may now shift their focus towards a series of imminent positive catalysts that will drive Groupon shares significantly higher in short order.
These positive catalysts include 1) upgrades and increased price targets from sell side analysts, 2) incremental investments from value and arbitrage funds, 3) significant covering by crowded short sellers who have overplayed their hand, and 4) public discussion regarding a plan for monetization.
We estimate that Groupon’s SumUp investment alone is worth approximately $15 per share, more than half of its current market capitalization. Factoring in the SumUp investment, the market is valuing Groupon’s core business, which is poised for accelerating growth and profitability, at just 2.8x consensus FY 22 adj. EBITDA.
“We believe Groupon’s public disclosure of its SumUp stake is significant news that validates SumUp as a true gamechanger for Groupon’s equity,” said Eiad Asbahi, Founder and Managing Partner of Prescience Point. “Our research unearthed a previously hidden asset that the market continues to overlook. At this extremely cheap valuation very little has to go right in order for Groupon shares to increase substantially from current price levels.”