Groupon Inc. – The Model Price Math

We now have Groupon Inc. (GRPN) chart on Model Price, with December 31, 2012’s balance sheet included.  Some observations:

  1. GRPN has a very small balance sheet.  Book value is only $1.17.  Theoretical Earnings (TE) is calculated at only $0.10 cents.  When looking at consensus earnings estimates for December 2012 at $0.28 – GRPN is already earning more than their TE, which is positive.  Consensus for 2013 is $0.79 (We think this is one estimate though.)
  2. Convexity is very high at 18.90.  This is why the stock is very volatile.  The feedback link between the fundamentals of the company and the stock price is high.  (Compare this to Apple – subject of a previous blog – of 0.16.)
  3. Though volatile, GRPN will probably stay between EBV+8 and EBV+9.  Traders can buy at EBV+8 and sell at EBV+9 when appropriate.
  4. Readers will notice model price calculation of  $6.46.(See below)  Next year’s model price will be $13.79, based on the 2013 consensus estimate.   Model price is growing quickly, however model price fundamentals are growing underneath while the market waits.  This makes sense.
  5. Model Price will track GRPN everyday on Facebook.  As the future quarters are reported and corporate actions are announced, with the math applied, this will be fun to watch!

Groupon with weekly price bars, EBV Lines (colored lines) and model price (in purple)

For those interested, a daily updated chart of GRPN subsequent to this post will be maintained on Facebook, here.)

Reviewing this company brings back memories of 1999 and 2000.  During this period many new companies were born and became household names today, Amazon comes to mind.  Other companies died a painful “financial” death.  What is important here is we are observing market dynamics at work, seeding dynamic young companies, financially speaking of course.  The market is giving this company, through its stock price, equity capital, to expand their business.  We view the stock price as an asset of the company.  How the company uses this asset, the market will vote on instantaneously by way of its share price.  Yes, this is a high wire act, but if management gets their math right, unlimited funding is available from the financial markets.

We are NOT recommending these social networking stocks to anybody (FB, LNKD, GRPN) by way of our analysis.  We are just doing the math and observing market action at work – this is fun for us.

LinkedIn reported on Thursday night.  We already have a chart on LNKD, however we will input the December 31, 2012 balance sheet today for tonight’s run.

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