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Good daily deal? Groupon surges on upgrade

February 13, 2013: 12:15 PM ET
Investors have been getting a good deal with Groupon stock. Despite a recent surge, it's way off its all-time high.

Investors have been getting a good deal with Groupon stock. Despite a recent surge, it's way off its all-time high.

Groupon will report its fourth-quarter earnings in two weeks. Is the worst over for the troubled daily deals stock?

One analyst seems to think so. Arvind Bhatia of Sterne Agee upgraded Groupon (GRPN) from "neutral" to "buy" on Wednesday morning. Shares popped 5% on the news.

Groupon has enjoyed a stellar run in recent months. The stock has more than doubled from the 52-week low it hit in November. But you have to put that rise in context. At about $5.50 a share, Groupon is still more than 80% below the all-time high of about $31 that shares hit shortly after Groupon's November 2011 initial public offering.

Several traders on StockTwits were not rushing to buy the Groupon hype.

Agee's analyst Arvin Bhatia says BUY $GRPN. TipRanks shows his -9.4% avg return and his last "BUY" on $GRPN lost 48%

$GRPN with the short stick around $4.80 level. Long term RS still heading doooown - don't fight the LT trend.

Covered $GRPN yesterday. Company is garbage, but don't want to compete with other shorts at the moment. May see 7-8 on squeeze. Worth 3

Ouch. To be fair, Bhatia admits that the upgrade is controversial and a bit contrarian. He wrote in his note Wednesday that the upgrade was "not a call on the company's upcoming 4Q results." Bhatia bolded that phrase, not I. He added that "we recognize that meaningful risks remain, the stock will be volatile and we may be a bit early. However, we believe the risks are well known and largely priced in."

Still, I am skeptical of Groupon's long-term chances. The recent write-down in Amazon's (AMZN) investment in Groupon rival LivingSocial paints an ugly picture for the daily deals group.

And to be honest, the only social media stock that really has proven to Wall Street that it has a viable business model with diversified revenue streams is LinkedIn (LNKD). I realize there's little (if anything) in common between Groupon and LinkedIn. But investors do seem to lump these two along with Facebook (FB), Zynga (ZNGA) and Yelp (YELP) in a broader social category.

One trader suggested that Groupon could have a fighting chance if recent mergers pan out.


$GRPN Will Groupon's Success Be Determined By Its Acquisitions?

It's possible. But it can be a rocky road for a recently public company to be making deals of its own. Just ask Zynga. OMGPop turned itno OMGFlop after people stopped drawing much of anything.

Another trader thought that Groupon had been punished so much that it may now be a bargain stock, particularly when compared to competitors.

$TZOO at 22 or $GRPN at 6 no brainer. Duh winning!

Not so fast. Travelzoo (TZOO), which offers deals on airline and hotels, is trading at 18 times 2013 earnings estimates. Groupon, despite its lower share price, is trading at 23 times earnings forecasts. It's the more expensive stock of the two.  That doesn't mean it is doomed to lag behind Travelzoo, but Groupon is not cheap.

And speaking of travel, one trader noted that Groupon's recommendation technology for trips seems far from perfect.

$GRPN thinks I would like to visit Jamaica | Providence, RI | Scotland | Rindge, NH | New York City #WhyWhyWhy?

Too funny. It's kind of like the Pandora (P) Jack Johnson effect. No matter what station I seem to listen to, he always comes up. Led Zeppelin? Jack Johnson. John Coltrane? Jack Johnson. Toddler Radio for Baby Buzz? Jack Johnson playing songs from the Curious George movie soundtrack. I don't like Jack Johnson! And that's why I now use Spotify and Songza more than Pandora.

If Groupon is similarly unable to give its users what they really want, that doesn't bode well for future revenue and profits.

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