Is Alibaba coming to Groupon's rescue?
It's been a miserable few years for Groupon (GRPN), the once ballyhooed Internet deal company credited with starting the craze in online coupons. But one web titan appears to see a bright future for Groupon: Alibaba Group (BABA).
The Chinese e-commerce giant disclosed Tuesday in a regulatory filing that it has bought a 5.6 percent stake, or 33 million shares, in Groupon. That sent Groupon shares soaring more than 41 percent to $4.08. U.S. shares of Alibaba rose $5.71, or 9.3 percent, to $66.61.
Groupon is also showing signs of a turnaround after a major shakeup in the fall of 2015, when the company said it would lay off more than 1,000 workers and reduce the number of markets where it operates around the world. The changes extended to the boardroom, with Groupon's chief operating officer, Rich Williams, in November replacing Eric Lefkowsky as CEO.
Groupon today operates in 28 countries, down from 45, and is focusing on helping people find deals on higher-margin products, such as apparel, jewelry and home furnishings, rather than lower-end goods and services. The company's recent marketing efforts are also paying dividends, showing strong growth at the local level, according to UBS.
The overhaul has stanched the bleeding. Groupon last week reported stronger-than-expected profits for the final three months of 2015, topping analyst forecasts. It also attracted 645,000 new customers in the quarter, the most it has added in over a year.
"When I stepped into my new role just about 100 days ago, I said that I didn't need 100 days before sharing my plan for putting Groupon on a stronger growth path," Williams said in a Feb. 11 call with analysts to discuss the company's latest results. "I knew that would likely sound more like ego than strategy, but I've been at the company for four-plus years. I knew that I had to move fast, and I knew what needed to change."
Despite its recent progress, the jury remains out on whether Groupon can sustain that momentum.
"[W]hile recent Q4 2015 results delivered some signs of traction, we will continue to watch for added signals of progress within the company's efforts to streamline, improve the shopping business and acquire new customers via elevated marketing efforts," UBS analysts said in a recent note.