Groupon Profits Up - Don't call it a Comeback


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Groupon (NASDAQ: GRPN ) reported earnings on Monday evening that far exceeded expectations. The daily deals site, based in Chicago, reported earnings per share of $0.02, beating the Wall Street estimate of $0.01. Revenues for the first quarter came3 in at $559.3 million, well ahead of the Wall Street estimate of $530.5 million.

All of the signs are there that Groupon is growing up, bringing some much needed credibility back to the company are should be taken seriously going forward. However, it should be noted that the hard work is still to come. One can rest assured that nobody knows this better than CEO Andrew Mason. He will know that one quarter doesn't make a trend.

Recent reports that Mason was seen drinking beer while telling employees that the company needs to grow up can apparently be taken as a positive and, while Wall Street will likely remain cautious and even skeptical for a while, this a solid step in the right direction.

Mason said that the company is using technology to better target deals at specific customers, resulting in better purchase rates and higher spending from GRPN's 37 million customers. Statistics suggest that deals within a 5 mile radius of a customer has a five times higher chance of resulting in a sale. Even in the internet age, people seem to prefer to buy an item from a local seller. Of course, when the deal relates to something like a restaurant or a massage, this makes total sense.

Analysts are concerned, however, that this "targeted" approach requires more deals to pick from on the GRPN system, which in turn will require more salesperson on staff. Mason doesn't see a problem with that, saying "I think we'll see that increase. We'll be adding more front-line sales force."

The company also seems to be improving its take rate - the amount of money it keeps from what it makes. It is spending less on marketing, and the Groupon Now mobile product is doing extremely well.

It now has 36.9 million active customers, and it served over 100,000 unique merchants in the first quarter. Groupon's operating profit was 7% in 1Q. Wall Street was expecting 6.5%.

Still, analysts will continue to be concerned by added costs. Marketing spending was cut almost in half, but sales and administrative overhead nearly doubled to $283.5 million.

So yes, there is reason for optimism going forward, but it should be cautious optimism.

Follow me @BCallwood .

(c) 2012 Benzinga does not provide investment advice. All rights reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Earnings

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