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Groupon's Got a Whole New Deal, but Are Investors Buying?

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Growth in its coupon business may have hit a wall, but there's a new segment that looks more promising.

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MINYANVILLE ORIGINAL Groupon (GRPN) ended after-hours trading Tuesday down almost 20%, to $6.06, after releasing quarterly results that failed to impress, followed immediately by guidance that made it look even worse. But are its investors focusing on the wrong thing?

Only months after going public as the leader in online local couponing, it looks like Groupon is changing direction. Right or wrong, it looks like it's responding to critics who say that the coupon craze has crested. Instead, it's concentrating on growing a new offering, Groupon Goods, which offers online shopping at discounted prices.

Introduced late last year, the Groupon Goods results are comparatively encouraging. Direct revenue for the category more than tripled from the $19.2 million earned in the first quarter, accounting for most of the company's total $65.4 million, CFO Jason Child said during a conference call.

In fact, CEO Andrew Mason said during the call that the company's North America growth derives largely from Groupon Goods. Groupon, he said, "has evolved into a name customers trust."

Not that this new category is any less competitive than selling local coupons. Groupon is going up against some behemoths of daily deals, including Amazon (AMZN) and eBay (EBAY). Bargain shoppers also have a plethora of niche sites to choose from, like upscale home furnishings site OneKingsLane.com and the trend-conscious site Fab.com.

At this point, Groupon Goods appears to offer nothing that would make those competitors shake in their boots. A yogurt maker, some kind of protein supplement, discount sheet sets… Nothing that would make shoppers break the doors down, either, and no local merchants to be found.

Let's hope it's working behind the scenes on leveraging its one huge advantage over every other website: the local angle. Groupon grew from the ground up, sending people knocking on the doors of pizza parlors and hair salons in city after city, around the world, asking them to participate in a powerful new technology that would allow them to compete with the big guys. OK, it screwed up fairly often, enraging business owners and customers alike. But give it credit for being the first, and still the only, Web company to try to go local everywhere.

Groupon may have learned from the experience. The company's Groupon Works section shows some attention to educating and assisting merchants in the art of the Groupon deal.

It also is expanding its headquarters in Palo Alto, California, in order to deploy more of its resources to building a suite of technology products for local merchants, according to Bloomberg.

Surely it will leverage that local power to offer discounts from small businesses. A Main Street business could offer an online-only discount price on that yogurt maker or protein supplement, for pickup at the store. Museums and orchestras could put their membership offers on Groupon, and save on junk mail costs.

In any case, it's clear that the coupon business isn't going much farther. The company's forecast for the current quarter fell short of expectations, at a range of $45 million to $65 million. Analysts had been projecting $76 million, according to Marketwatch.

Even its fast worldwide expansion, which so impressed investors early on, fails to stir enthusiasm. Business in Europe is hardly booming or, as the Wall Street Journal notes in a blog on the conference call: "Apparently the Greeks aren't as willing to spend on Laser Hair Removal coupons right now."
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No positions in stocks mentioned.
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