Growth is expected to reaccelerate in the second half, but weak North America operations and execution risks support the Sell rating

Overview

This report reviews Groupon's fiscal 2026 second-quarter results, second-half operating outlook, and AI-first transformation. Second-quarter revenue was below Goldman Sachs and market expectations, mainly due to declining transaction volume in North America Local and weak new merchant acquisition; meanwhile, improving July growth and stronger resilience in international operations increased management's confidence in second-half reacceleration. Goldman Sachs raised certain earnings forecasts and valuation multiples, increasing the target price to $22, but believes the relative risk-reward at the current valuation remains negative, and therefore maintains a Sell rating.

Core views

The core view is that short-term recovery signals coexist with medium-term execution uncertainty. Positives include mid-single-digit growth in July, growth in international billings, strength in health and beauty categories, and early faster response times and better customer experience from Project Foundry and AI applications. Negatives include second-quarter revenue declining about 1% year over year, North America Local transaction volume down 6%, marketing expenses up 5% year over year, and pretax costs still expected from restructuring. Goldman Sachs believes investors will focus over the next 6 to 12 months on whether second-half guidance can be delivered and whether product, platform, and AI transformation can translate into quantifiable growth and efficiency gains.

Analysis framework

The report compares actual second-quarter results with Goldman Sachs and market expectations, breaks down North America Local and International performance, adjusts 2026 to 2028 forecasts based on July trends and management guidance, and determines the 12-month target price using an equal-weighted valuation approach based on EV/GAAP EBITDA and EV/FCF-SBC. It also evaluates risk-reward through Goldman Sachs' factor profile, M&A probability framework, and relative comparisons with covered companies.

Methodology notes

• Valuation methodsEV/GAAP EBITDA and EV/FCF-SBC equal-weighted valuation

  Multi-method relative valuation

  The $22 target price is derived from two equally weighted methods: applying 30.0x EV/GAAP EBITDA to the forecast for one year after NTM, and applying 23.5x EV/FCF-SBC to the forecast for four years after NTM, with the latter discounted back three years at a 12% discount rate.

• Cost of capitalCAPM

  Cost of equity

  The 12% discount rate is based on blended average CAPM assumptions for covered companies, including a 3% risk-free rate, an average beta of approximately 1.3, and a 7% equity risk premium.

• Factor analysisGS Factor Profile

  Growth, financial returns, valuation multiples, and composite factors

  Goldman Sachs uses standardized rankings of forward revenue, EBITDA, EPS, ROE, ROCE, CROCI, and multiple valuation metrics to measure the stock's position relative to the market and industry peers.

• Event analysisGoldman Sachs M&A rating framework

  Acquisition probability grading

  Groupon's M&A rating is 3, corresponding to a relatively low acquisition probability of 0% to 15%, so M&A factors are not included in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Groupon Inc. (GRPN.US) common stock

  Directly covered security in the report, Sell rating maintained

  Strengths

  July growth improved; international operations and the French market performed strongly; health, beauty and wellness categories achieved double-digit growth; AI and Project Foundry may improve customer experience and operating efficiency.

  Weaknesses

  Second-quarter revenue was below expectations; North America Local transaction volume declined 6%; new merchant acquisition was weak; marketing expenses grew faster than revenue; transformation results have not yet been fully quantified.

  Comparison

  The rating is based on Groupon's total return potential relative to Goldman Sachs' Americas Internet coverage; Goldman Sachs believes its current risk-reward is more negative than other companies in the coverage universe.

  Risks

  Failure to deliver second-half reacceleration, delays in executing the AI transformation, insufficient marketing returns, restructuring costs, and competitive pressure could all weigh on performance; if growth and merchant adoption significantly exceed expectations, the Sell thesis would be challenged.

Key data

• 12-month target price$22Raised from $13, but below the $25.03 reference share price shown in the report.
• North America Local transaction volumeDown 6% year over yearOne of the main reasons second-quarter operating results were below expectations.
• July growthMid-single-digitManagement cited this as strengthening confidence in renewed growth reacceleration in the second half.
• International billingsUp 5% year over yearExcluding Giftcloud, with stronger performance in France and the health, beauty and wellness categories.
• Marketing investmentUp 5% year over yearMainly due to increased paid channels, brand marketing, and marketing technology costs.
• 2026 revenue forecast$519mnPrevious forecast was $517mn.
• 2026 adjusted EBITDA forecast$77mnPrevious forecast was $72mn.
• 2026 gross billings forecast$1.72bnOverall forecast essentially unchanged.
• Third-quarter revenue forecast$129mnPrevious forecast was $130mn.
• Third-quarter adjusted EBITDA forecast$19mnPrevious forecast was $18mn.
• Restructuring pretax costs$7mn-$13mnManagement expects to achieve approximately $5mn in net savings in fiscal 2026.

Impact & implications

The significant increase in the target price reflects improved earnings forecasts and higher valuation multiples, but does not indicate a positive rating shift. Based on the share price shown in the report, the $22 target price still implies potential downside of about 12.1%. Subsequent share price performance will depend heavily on whether second-half growth recovers as expected, whether marketing investment can generate sufficient returns, and whether AI and platform transformation can translate into higher purchase frequency, customer lifetime value, merchant acquisition efficiency, and margins.

Risks

• North America Local may remain persistently weak, with transaction volume and revenue potentially below forecasts.
• Soft new merchant acquisition may limit supply quality, customer engagement, and long-term growth.
• Marketing investment is rising while revenue growth remains limited, creating uncertainty around returns on investment and margin improvement.
• The AI-first transformation involves merchant acquisition, customer interaction, marketing, onboarding, and internal processes; execution is complex and actual benefits remain to be verified.
• Restructuring is expected to generate $7mn to $13mn in pretax costs, and the savings target may fall short of expectations or be delayed.
• If local billings, user growth, and merchant adoption exceed expectations, or the company implements more cost-reduction measures, the Sell view may become invalid.
• Potential acquisitions, easing competitive conditions, and improving macro consumption could drive upside beyond expectations.

What to watch

• Whether billings and revenue growth can reaccelerate in line with guidance in the second half.
• The degree of improvement in North America Local transaction volume, new merchant acquisition, and marketplace supply quality.
• Returns from increased marketing spending on customer acquisition, purchase frequency, and customer lifetime value.
• The quantifiable operating impact of product and platform upgrades over the next 6 to 12 months.
• Implementation progress of AI applications in merchant acquisition, customer interaction, marketing, onboarding, and internal efficiency over the next 12 to 24 months.
• Whether growth in International, the French market, and health and beauty categories can be sustained.
• Restructuring costs, the approximately $5mn annual net savings target, and changes in adjusted EBITDA margin.