Why Groupon Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of "daily deal" specialist Groupon (Nasdaq: GRPN  ) soared 19% on Tuesday after its quarterly revenue easily topped Wall Street expectations.

So what: The stock has been crushed in recent months on concerns over slowing growth, but a huge top-line beat -- revenue soared 89% to $559.3 million versus the consensus of $530.5 million -- is quickly easing some of those fears. Of course, with about half of Groupon's public float being shorted, today's rally is certainly being enhanced by nervous bears scrambling to cover their positions all at once.   

Now what: Management now sees second-quarter revenue of $550 million-$590 million, representing a jump of 40%-50% from the year-ago period. "We are pleased to report a record quarter that demonstrates our progress in unlocking the opportunity in local commerce for merchants and customers worldwide," CEO Andrew Mason said in a statement. But while today's results serve as a nice short-term boost to the stock, the continuing trend of slowing active customer additions, slowing international sales, and slowing sequential revenue growth are good reasons to remain cautious about Groupon's long-term prospects.

Interested in more info on Groupon? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On May 15, 2012, at 12:48 PM, accelerando wrote:

    I did what I promised myself I would never do. Bought weekly puts on grpn at open this am which have just more than doubled. Gambling? Of course. But one thing have noticed over many years is that strong news is usually overbought or oversold at open and grpn's news wasn't nearly as good as the almost 50% surge since yesterday would have us believe.

    Now? Exchanged my May 17 14's for January 11's. I simply do not see a long term business for grpn -- they provide no value, really, to anyone. They take advantage of a temporary inefficiency of connecting customers with business willing to offer a loss leader and take a commission for, basically introducing a customer to a business. That commission, or tax, is exactly the kind of thing that the new economy is squeezing out everywhere. Think insurance agent. Besides grpn has growing competition and a management seemingly overwhelmed by the size of their business. I see the company totally bankrupt within three years at most.

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