Image source: Groupon.

What happened

Shares of daily deals merchant Groupon Inc. (NASDAQ:GRPN) were plummeting today after the company said it would buy rival LivingSocial and reported third-quarter earnings. As of 12:30 p.m. EDT, the stock was down 19.8%.

So what

Groupon reported an adjusted loss of a penny per share for the quarter, in line with expectations, while revenue rose 1% to $720.5 million, beating the consensus at $710.5 million.

The sell-off appeared to be prompted by the LivingSocial acquisition, which management said would close in early November and was for an amount "not material." At the height of the daily-deals boom LivingSocial was worth nearly $6 billion, and counted as an investor, but the industry has since dried up, leaving the company worth almost nothing. The market may see the move as a needless distraction, as taking on an unprofitable rival could weigh on the bottom line, but management said on the call that LivingSocial would bring 1 million customers to Groupon and $15 million in additional revenue per quarter.

Now what

Groupon raised its revenue forecast for the year, in part due to the LivingSocial acquisition, as it now sees full-year sales of $3.075 to $3.15 billion, compared to the consensus of $3.1 billion.

Groupon is now an eight-year-old company, but it's made little progress toward profits or sales growth. The company is continuing to narrow the scope of its business, pulling out of countries where it is unprofitable, but the fate of LivingSocial and other peers speaks to the challenges of the business model. Though the e-commerce company is showing modest growth in North America, its long-term prospects continue to look questionable.

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