2 Tech Stocks With Different Prospects

Stocks are roughly flat this morning, with the Dow (INDEX: ^DJI  ) down 0.3% and the broader S&P 500 (INDEX: ^GSPC  ) off less than 0.1%, at 9:58 a.m. EST.

The micro view: Shares of consumer deal aggregator Groupon (Nasdaq: GRPN  ) were down roughly a quarter at 9:47 a.m.; the company missed estimates on both earnings and revenue when it reported its third-quarter results after yesterday's close. The represents a stunning 89% loss relative to the closing price on their first day of trading, barely more than a year ago. That disastrous performance is an illustration of the likely outcome when one buys an untested, faddish business model at an indomitable franchise-valuation. Groupon is what I imagine might have happened to eBay (Nasdaq: EBAY  ) if the latter had never introduced the "Buy it now" option -- as people tire of the novelty of the concept (in eBay's case, the auction format), customer retention, and business momentum collapses.

If you're interested in speculating on innovative consumer business models, my advice is to identify one that has proved itself in terms of delighting their customers through high repeat business / retention rates. Second, you're better off buying the shares in a period when they are out of favor, rather than when the hype about them is at their peak (as is often the case at a company's initial public offering). One stock that appears to fit both of those criteria currently is Netflix (Nasdaq: NFLX  ) . If you want to get a comprehensive assessment of Netflix's prospects and why Fool analyst Jim Mueller writes the shares "should again soar high," click here to order our premium report, which includes a full year of coverage.


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