Groupon rebounds but still faces questions
The daily-deal company's surprisingly good earnings report doesn't erase some big concerns.
Earlier this year, the daily-deal site was floundering under the leadership of co-founder Andrew Mason, whose tenure as CEO, as Time magazine noted, was "pockmarked by accounting gaffes, sophomoric stunts and a whopping 77% decline in the company’s share price." Some pundits even wondered whether Groupon would survive.But these skeptics have been silenced, at least for now. Groupon recently posted a smaller-than-expected net loss and named Eric Lefkofsky, another co-founder, as permanent CEO. Investors cheered the news and sent shares of Groupon soaring more than 22% on Thursday to close at $10.64.
The Chicago-based company has proven to be more resilient than many expected as it benefits from its growing mobile business and its expansion outside the U.S.
Mobile is an area of keen interest for investors, and the fact that more than 50 million people have downloaded Groupon’s apps globally speaks volumes about progress in that area. Equally impressive is the statistic that half of transactions in North America were completed by mobile devices in June, up from 30% a year earlier.
Interest in Groupon's core product isn't fading either. More than 41 million people have purchased a Groupon in the past 12 months, a 13% year-over-year gain. About 18.3 million of these customers are in North America, with the remaining 23.5 million coming from international markets.
Although chairman Ted Leonsis has said the company is "confident that Eric is the right leader for this stage of Groupon’s evolution," there are plenty of skeptics. Bloomberg News noted caustically that Lefkofsky has a "history of failed ventures."
Lefkofsky, who owns 17% of Groupon’s common stock, certainly has plenty of financial incentives to turn the company around. Whether he can pull it off, however, remains to be seen.
That's why investors should take a pass on Groupon for now. Not only are the shares super-risky given the company's rocky history, but they're extremely expensive as well. They trade at a price-to-earnings multiple of 76.3 based on this year's estimated earnings, more expensive than Google (GOOG) and Facebook (FB), which trade on that basis at 20.6 and 54.6, respectively.
Although you can find plenty of deals on Groupon, its stock isn’t one of them.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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