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Tuesday Grok: Groupon surges on latest results, and savage cuts to marketing

Tuesday Grok: Groupon surges on latest results, and savage cuts to marketing

Early investors can sell after June 1. Oh, that's a lucky break

Groupon released its latest financial results for its most recent quarter, and the headline numbers look great. They look stunning in fact. A cynic might suggest they are almost too good to be true. It went from a $146.5 million loss in the corresponding quarter last year to an $11.7 loss this quarter in this latest result.*

But let's not be churlish — the stock was up 34 per cent this morning. Let's grant them their moment in the sun...and fingers crossed they got their numbers right this time.

If we were being churlish we would point out that a big component of the turnaround on its path to profitability was a savage cut in marketing costs from $230 million to $116 million. Source: <i>The New York Times</i> . That's $114 million of the $134 million turnaround attributable to slashing acquisition costs. Inevitably that will start to hurt them (and haunt investors) in the months ahead.

Another way to view it is to say that only $20 million of the extra $263 million revenue it generated quarter on quarter fell to the bottom line. That's only seven and a half cents of profit for every extra dollar earned, despite a thermo nuclear assault on its marketing costs.

And it is of course, purely and happily coincidental that this apparently excellent result arrived barely three weeks before the early investors are released from their obligations, and are allowed to sell down their holdings.

Putting aside the numbers (and cynicism) for a moment, the other interesting thing about the announcement is the commentary that followed from the company which suggests, that like other procurement portals before them, Groupon has figured out the longer game is not Daily Deals, but rather in the provision of software and services.

This was a point picked up by <i>PandoDaily</i> in its coverage. “And yet, today’s redeeming earnings report shows the company is down but not out. Groupon reported blockbuster growth for the first quarter of 2012. Gross billings were up 104 percent. Revenue was up 89 percent. North America, the most mature of Groupon’s 49 markets, was up 75 percent...The irony is that Groupon has all but abandoned talk of daily deals. That topic is not a popular one. On an earnings call with analysts, the company attributed its successful quarter to all of the tools and functions and technologies it has built around its daily deals business. The next step, CEO Andrew Mason said, is to integrate them.”

Meanwhile, Henry Blodget at <i>Business Insider</i>, who has been critical of Groupon's short term but professes to be a bull long term has been crowing a little in his latest column. “Wait wasn't everybody just saying that Groupon was a ponzi scheme. Yes, they were. And, boy, were they confident about it. And, boy, did they think anyone who said otherwise was a moron....Funny how quiet all those people who said Groupon was a Ponzi Scheme have gotten all of a sudden.”

Yo, Henry — loud, crazy guy shouting from a roof top over here!

Grok never said Groupon was a Ponzi scheme, instead we have always said it's a Crock, and it is. Just like the corporate procurement portals that came before it. We stand by that assessment and will until the company inevitably repositions itself as a SaaS vendor (as hinted in PandoDaily) and abandons a business model where its comically disloyal audience crushes the very sellers the Groupon relies on for sustenance. For a longer explanation, click here .

Thomson resigns

Scott Thompson bowed to the inevitable and resigned as Yahoo CEO yesterday over the flare up about his qualifications — or lack of them, on his corporate résumé.

The fact that Thompson chose this moment to also inform the board of Yahoo, and with it the baying pack, that he has thyroid cancer lead to a modicum of restraint in the coverage.

Meanwhile activist shareholder Daniel Loeb, who discovered Thomson's exaggerations, has joined the board of the troubled portal.

*This being Groupon, it might be prudent to wait at least six to eight weeks to know whether these numbers are really bankable. Just saying.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.

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