Groupon hits low on Evercore downgrade, $3 price target

SAN FRANCISCO Fri Aug 17, 2012 3:21pm EDT

People enter and leave Groupon Inc corporate office and headquarters in Chicago, Illinois, November 4, 2011. REUTERS/Frank Polich

People enter and leave Groupon Inc corporate office and headquarters in Chicago, Illinois, November 4, 2011.

Credit: Reuters/Frank Polich

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SAN FRANCISCO (Reuters) - Groupon Inc (GRPN.O) shares slumped to a new low on Friday after an analyst raised concerns about the future effect of slowing growth on the daily deal company's large cash position.

Groupon shares were down 8.0 percent at $4.60 in early afternoon trading on Friday, after sinking to a record low of $4.51 earlier in the day.

The declines added to a swoon in recent weeks that has enveloped not just Groupon, but several consumer Internet and social media stocks including Facebook Inc (FB.O) and Zynga Inc (ZNGA.O).

Groupon's losses on Friday came after Evercore Partners analyst Ken Sena downgraded shares of the largest daily deal company and set a $3 price target on the stock.

Groupon missed Wall Street's second-quarter revenue expectations earlier this week. Gross billings, which reflect the money Groupon collects from consumers who buy its daily deals, fell during the second quarter, the company also said.

"We see potential for future cash burn assuming billings declines persist," Sena wrote in a note to investors.

Groupon has more than $1 billion in cash and the company generates a lot of working capital because it collects money upfront from customers who buy its vouchers and it then takes at least 30 days to pay merchants their share.

However, if Groupon's growth slows, it may take in less money upfront, while still having to pay merchants from prior deals, Sena said.

A 5 percent annual decline in gross billings could turn Groupon's working capital benefit against the company, suggesting "cash burn," the analyst added.

"The company stands to find itself in a situation where they are paying out merchants on a larger (prior) business scale relative to the cash they are able to collect from current consumers," Sena wrote.

A Groupon spokesman declined to comment.

(Editing by Jeffrey Benkoe and Matthew Lewis)

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