Groupon May Struggle to Find A Buyer: Huber Research

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Shares of Groupon (GRPN) soared as much as 13.8% in early morning trading Monday following a weekend report from Recode that GRPN executives have put the company up for sale.

GRPN was trading some 5% higher at $4.58 shortly after 10 a.m. ET after Recode, citing two people familiar with the situation, reported the company is looking to sell and has approached "several public companies" in the past month to drum up interest.

Groupon -- which small merchants use to offer the public generous coupons, but which only apply if a large number of consumers sign up -- debuted in 2011 at $28, but has struggled in recent years. It's been trading for months at around $5 a share.

Internet coupon site Groupon's inability to deliver solid growth since going public 2011, including a 15% drop in the past year make it hard to expect a potential suitor to pay a significant premium for the firm, Craig Huber, an analyst at Huber Research Partners says.

Huber said the stock is valued fairly in the $4 to $4.50 range and said the company has struggled with its business strategy and revenue and margin trends for years.

"I've rarely seen a public company struggle as much with its business model as Groupon," Huber said. "I think they will struggle to find a buyer who will offer a meaningful premium to where the stock is currently trading at."

Groupon's total revenue declined 17% in the first quarter, due to a decline in local and goods-derived revenues.

The company's international business proved more resilient: Groupon's international gross profit rose 19% in the first quarter and the international customer base expanded to 17 million.

Tom Forte of D.A. Davidson & Co. considers that unjustifiably low, even after factoring in Groupon's slow growth rate in recent years. He's a set a $12 price target on the stock, assuming a sale to a suitor like Priceline (PCLN) , Alibaba (BABA) , Alphabet (GOOG) , (GOOGL)  or Facebook (FB) . He added that even if GRPN isn't sold, it should still trade between $6 and $8 a share.

Forte sees five potential catalysts that could drive improved operating results at Groupon over the next year including a sale of the company, managing to drive full-price sales for small businesses, successful marketing efforts that push up gross profits well-positioned international efforts, and better profitability due to management cutting back lower-margin parts of the business.

"We would argue its North American business has never been in better shape and its international operations are well positioned, yet shares are trading under $5," Forte said in a note Monday morning. "If public markets are not giving the company the value we believe it deserves, perhaps maybe the right strategic buyer would."

(This story has been updated with additional details.)

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