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Why Wall Street Is Cautious about Groupon

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The stock’s rating

The prospects of Groupon (GRPN) have been assessed by several Wall Street experts over the past 12 months, and a few more have recently weighed in on the stock after it reported its 1Q17 earnings.

Wall Street has been generally cautious about Groupon. Ten analysts have rated the stock as a “buy,” while 20 have rated it “neutral,” and seven have rated it as a “sell.” The stock’s average rating is now “neutral.”

In terms of stock performance, Groupon had an average price target of $4.55 on June 8. The stock received the most bearish price prediction from UBS (UBS), which has a price target of $2.85.

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A mixed 1Q17 report sparks downgrades

UBS cut its price target on Groupon from $3.65 to $2.85 in response to the company’s mixed 1Q17 scorecard. Cowen (COWN) also downgraded the stock and cut its price target by $1.00 following the 1Q17 report.

Piper Jaffray (PJC) has the most bullish price target on Groupon, predicting that the stock will more than double its prevailing price to $6.50.

Notably, Groupon’s 1Q17 revenue of $673.6 million fell 3.6%, missing the consensus estimate.

Competition headwinds

Concerns about Groupon appear to be stemming from the perception that the retail environment has become more challenging, while competition just keeps tightening. In e-commerce, competitors such as Amazon.com (AMZN) have continued to strengthen their positions while leveraging their deep pockets against smaller rivals like Groupon.

But Groupon could surprise Wall Street if its shift to higher-margin products drives profits faster than expected.

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