We are raising our price target on Groupon, Inc. based on new information indicating the value of the Company’s stake in the European payments company SumUp is worth more than Groupon’s entire market capitalization.
In our initiation report, we stated that Groupon was 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.
On Jan. 26, Bloomberg News published a report 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) according to “people familiar with the matter.”
In our initiation report, we estimated that Groupon owned ~5% of SumUp. Moreover, Prescience Point was recently informed by a large Groupon shareholder that former Groupon CEO, Aaron Cooper, confirmed to them that Groupon’s SumUp ownership stake was in the “mid-single digits.” Accordingly, we believe Groupon’s SumUp stake alone could be worth >$1 billion, ~$200 million more than Groupon’s current market capitalization.
We believe the recent news of SumUp’s proposed funding round, which confirms the significant value of Groupon’s SumUp stake, will be the spark that sets off a series of positive catalysts that will drive Groupon shares significantly higher in short order. These positive catalysts include 1) public confirmation by Groupon of its ownership percentage in SumUp, 2) increased price targets from sell side analysts, 3) incremental investments from value and arbitrage funds 4) and covering by crowded short sellers.
We have also urged Groupon to publicly disclose its ownership percentage in SumUp and update the market on a path toward stake monetization and plans for the proceeds (e.g., special dividend, share buyback, etc.).