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The Three Pillars of Groupon's Survival Strategy


It's not all about pizza coupons anymore. A forthcoming location-based mobile app, a move into direct sales, and a major acquisition put the company in a position to stay on top.

It can no longer claim to be the fastest-growing business ever, but Groupon (NASDAQ:GRPN) at least can brag that it survived the short-lived bubble for daily deals sites.

It may even have come up with a business plan that makes sense to investors.

It's not making money yet, but it's closer after the last quarter. It earned $0.02 per share before factoring in the costs of employee stock options and past acquisitions.

On the surface, the quarterly earnings announced Thursday after the close weren't that great. Sales rose 4.7% to $595.1 million, and net loss narrowed to $2.58 million. That fell short of the analyst consensus, compiled by Bloomberg, for sales of $615.7 million, though the loss was less than the expected $14.3 million.

Groupon's forecast for the fourth quarter is in line with expectations. It foresees revenue of $690 million to $740 million, and operating income of $40 million to $60 million. The analysts' estimate is $723.7 million in revenue, and profit of $46.1 million.

The initial reaction was negative, with the company's stock dropping 10% in after-hours trading before reversing direction to add 1.47%, ending up at $9.64 per share.

The whiplash may have been caused by the upbeat details that started filtering through on Groupon's latest quarter, and its intentions going forward.

First, the excuses, excuses for the shortfall in revenue: It's mostly Google's (NASDAQ:GOOG) fault. The company redesigned its Gmail, tucking promotions under a separate tab and thus reducing visibility for Groupon's daily emails to subscribers.

Mobile Apps

That explanation was made more palatable by the fact that Groupon is less dependent than it used to be on promotional emails. Increasingly, its people are accessing its offers via mobile apps, which have been downloaded by 60 million users. More than 40% of transactions are now completed on mobile devices, according to the company.

For the future, it has a location-based app in place, pointing to an enhanced ability to target consumers on the go with the right offers.

"We have to even further reduce our reliance on email and whatever happens with Gmail becomes less relevant," CEO Eric Lefkofsky told the Wall Street Journal on Thursday.
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No positions in stocks mentioned.
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