Groupon: It’s Better … Just Not a Buy

A key reason for the sacking of Groupon (NASDAQ:GRPN) CEO and co-founder Andrew Mason a couple months ago was that he had a knack for missing quarterly earnings reports.

Go figure, then, that with Mason out, Groupon had a much different look during its most recent announcement.

GRPN was up a solid 9% in Thursday afternoon trading following an encouraging first-quarter report. Revenues increased by 7.5% over the year-ago period to $601.4 million, and the company reduced its net loss from $11.7 million (2 cents per share) to $3.99 million (less than 1 cent per share) — both figures managed to top respective Street estimates for $591 million and 2 cents per share.

The North American business was particularly strong, with sales up about 42% year-over-year. Part of that improvement came from the selling of physical goods (albeit at deeply discounted prices). There was also growth from GrouponLive, its joint initiative with Live Nation (NYSE:LYV) that deals local concerts and events, as well as Getaways, a partnership with Expedia (NASDAQ:EXPE) that features local hotels.

Another promising change was a move away from Groupon’s daily emails — now representing less than half the company’s transactions — which many users considered to be spammy in nature.

Instead, Groupon has pushed other approaches like search and mobile notification. Mobile now accounts for 45% of North American sales, and the company has enjoyed more than 40 million downloads of the Apple (NASDAQ:AAPL) iOS and Google (NASDAQ:GOOG) Android apps, with 7 million of those coming in the first quarter.

Groupon also has been slashing costs, especially marketing expenditures, which were reduced by about 47% YOY to $49.6 million.

All this is great, and an enormous improvement from past quarters … but Groupon still has some big issues, such as its 18% plunge in international sales.

Groupon built its international business through a large number of acquisitions, but integration was a disaster. Groupon’s new approach — called “one playbook” — is streamlining its footprint on a standardized platform, applying its best practices (which have worked in North America) across the world.

The idea has merit but will need several quarters to play out, if it plays out at all.

But more immediately unappealing is the run-up in GRPN’s price. The stock’s bounce off its early November lows is now at roughly 120% — a disturbingly exaggerated move for a company whose core business still is unproven.

So while Groupon is a much better-looking company than it was yesterday, it’s still not a good deal right now.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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