Why Groupon Shares Soared

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-deals specialist Groupon (NASDAQ: GRPN  ) were looking like a steal today, jumping as much as 29% after the company reported earnings, named a new CEO, and announced a share buyback program. 

So what: The coupon merchant topped sales estimates of $606 million, posting revenue of $609 million, and delivered an adjusted EPS of $0.02, in line with estimates. However, the real news seemed to be elsewhere as the company named co-founder Eric Lefkofsky as CEO, ending the interim period following former CEO Andrew Mason's ouster in which Lefkofsky and Ted Leonsis served as co-CEOs. Groupon also initiated a share buyback program of up to $300 million, helping to restore faith among frustrated investors. For the current quarter, Groupon projected revenue of $585 million to $635 million, the midpoint of which is below analyst expectations of $621 million.

Now what: Most of today's jump seemed to come from Groupon shares having fallen so much in the first place. Investor faith seems to be coming back as the Mason era fades, but this is still a very risky stock. Despite beating estimates, revenue grew only 7% in the quarter, which is concerning for a stock that still carries a high price tag. Sales grew rapidly in North America and on mobile, but fell sharply abroad, indicating that the website may be a fad outside its native region. Still, with guidance of $100 million in operating income for the year, Groupon looks like it's well on its way to stability.  

Groupon shares have taken investors on quite a ride over the last two years, at times more horrifying than anything else. If you're looking for a Web 2.0 stock with a more sound business model, there's one that is growing twice as fast as Google and Facebook, and more than three times as fast as and Apple. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!

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9/27/2016 4:00 PM
GRPN $5.33 Up +0.15 +2.90%
Groupon CAPS Rating: *