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Why Groupon Inc Shares Tumbled

By Jeremy Bowman – Feb 21, 2014 at 6:51PM

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Is this meaningful? Or just another movement?

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 Groupon Inc (GRPN -4.13%) were getting clipped today, finishing down 22% after its forward guidance disappointed the market in its earnings report.

So what: The past quarter was actually better than expected for the deals merchant, as revenue rose significantly, up 20% to $768 million, beating expectations at $718 million, and an adjusted per-share profit of $0.04 was better than the analysts' mark at $0.02. Still, the stock took a beating as the current quarter's forecast was short. Due to recent acquisitions, specifically its $260 million purchase last month of Ticket Monster, the company now expects a loss per share of -$0.04 to -$0.02, well short of analyst estimates of a profit of $0.06 a share.

Now what: Revenue guidance for the current quarter at $710 to $760 million was actually ahead of expectations at just $668 million, so it seems like the market may be unfairly punishing Groupon for growing through acquisitions. Adding new businesses makes sense for the discount dealer, however, as it's the best-known and most-visited site in its industry, and acquiring rivals and partner businesses will allow it to expand its operating leverage, create synergies, and eliminate competition. Groupon projects only a slight increase in Adjusted EBITDA, but I expect meaningful profit growth to eventually follow.  

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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