Why Groupon Inc. Stock Soared Today

By Markets Fool.com

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Image source: Groupon.

What:Shares ofGroupon Inc.(NASDAQ: GRPN) were going through the roof today after the coupon specialist posted a narrower loss than expected and raised its full-year sales forecast. The stock had climbed 27.5% by 1:16 p.m. EDT.

So what:The daily-deals merchant reported a loss per share of a penny, better than estimates of a $0.02 loss, while revenue increased 2% to $756 million, also beating expectations. CEO Rich Williams noted strong customer acquisition in the quarter: The company was up 1.1 million new customers to 27.9 million, the most in two years. He also said, "We're excited with the progress of our marketing programs to date and their effectiveness in introducing millions more people to our marketplace."

Now what:Investors were also encouraged by Groupon's increased guidance as the company now sees full-year revenue of $3 billion to $3.1 billion, the high end of the range up from a previous$3.05 billion.

While the customer increase seems like a promising sign, Groupon still looks like a fundamentally flawed business. A sequential increase in the customer base of 4% should have led to more than a year-over-year increase in revenue of 2%. That uptick is better than the decline analysts expected, but Groupon, now eight years old, is a mature business with no profits and scarce revenue growth. Williams is focused on turning the business into a general bargain-shopping site rather than a daily-deals specialist, but that space is already crowded, and e-commerce has proven to be an extraordinarily difficult space to turn a profit.

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The stock could move higher if the company keeps beating expectations, but over the long term this looks like a loser.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.