Shares of Groupon Inc (NASDAQ:GRPN) are trading sharply higher on Thursday, up as much as 37%, after the company reported upbeat first quarter results.
The coupon and discounts marketplace posted Q1 revenue of $117.2M, ahead of $115.5M the analysts had anticipated. Even more notably, GRPN delivered a surprise profit, reporting EPS of $0.18, far above the projected loss of $0.11.
The company also achieved significant improvements across several key metrics, such as posting first double-digit billings growth in North America since 2017, and seeing positive quarter-over-quarter growth in its active customers base.
With the shares up nearly 100% YTD, it’s an exciting time for Groupon investors, and at least one of them says it’s just the beginning.
Activist sees his Groupon stake triple
Windward Management, a Florida-based activist fund, has been one of the earlier and more vocal Groupon bulls.
The fund, headed by its CIO Marc Chalfin, disclosed a stake in the company back in December 2023.
Accompanying the disclosure was Chalfin’s comprehensive letter to GRPN’s management that can be summed up into a fairly simple investment thesis - even with external headwinds present at the time, the company’s operations are sustainable if managed well. Should some of those headwinds turn into tailwinds - Groupon can become a turnaround story, and a lucrative investment opportunity.
Windward, which was buying shares as low as $3, had an average of roughly $6.50 at the time. With the stock nearing $24 in today’s trading, the fund is up well over threefold on its investment. And Chalfin says he’s not selling.
“Easier to buy now at $20, than at $10 two months ago”
Investing.com had a chance to talk to Marc Chalfin about his investment, yesterday’s earnings report, and Groupon’s future.
The head of Windward noted that the current stock performance is the culmination of two key themes he outlined in his letter one and half years ago: the resolution of structural issues at the company, and the improvement in the macro backdrop.
He notes that over the past year, the new management has stopped the cash burn, significantly eased the debt overhang, and was able to revamp Groupon’s algorithms to make sure clients get relevant, converting products and deals. The upcoming update to the mobile experience, which drives two-thirds of Groupon’s transactions, may serve as yet another sales catalyst.
Additionally, Chalfin praised the company’s improving metrics such as growth in North America, accelerating international performance, as well as the expansion of the enterprise business, which in Windward’s view will make revenues more predictable.
On the macro front, things are also looking good for Groupon, given that it’s a “counter cyclical recession investment play” that outperforms in a recession. Notably, it’s also immune from the market’s latest trigger word - tariffs.
Summing up yesterday’s earnings report, Marc Chalfin said “It is easier to buy now at $20, than at $10 two months ago.”
What’s Next
Chalfin, who described Groupon’s current situation as “seeing your projections play out in real life,” says he’s not selling out his stake, despite boasting such a notable gain.
Having envisioned this scenario over a year and half ago, he believes Groupon can be in “the first innings of positive earnings revisions.”
If the thesis is correct, Windward’s head sees the company well on track to return to $300M-$500M EBITDA annually.
Bringing this to the share price, Chalfin believes that with the current business trajectory, GRPN can trade “well north of $50 within 12 months.” He also notes that the company’s cash position, projected by Windward to grow to $300M by the year end, can open room for a share buyback, further boosting the valuation.