“I don’t love the story but I do like the price action,” says trader Guy Adami and price is truth.
And that price action has been extremely positive.
Groupon closed 18% higher ahead of its earnings release and then popped another 15% in the after market – when earnings hit.
Despite gaining more than 30% in less than 24 hours, Guy Adami thinks it's a mistake to fight the momentum. He believes more gains are coming. "The trade is long. I’d buy it for a pop to $15 -- but then fade,” he says.
What triggered that kind of bullish momentum?
Groupon cheered investors by posting its first quarterly profit and reining in marketing spending. Also Groupon said it had signed up more customers and merchants.
Trader Jon Najarian is also looking for more upside. "I'd buy it Tuesday at the open," he says. "A lot of shorts are sitting on this ahead of the Facebook IPO. That augers well for the longs," he says. (In other words, he's expecting a squeeze.)
Benchmark analyst Clayton Moran shares the enthusiasm.
“The stock has been hated since the IPO,” he says. “The move down has been dramatic and sentiment has been negative but the results show the business is sustainable and growth is powerful. That combination amid such negative sentiment sets up for a move higher. I agree the stock will go higher even after the pop in extended trade," he says.
It’s worth noting that both Moran and Adami are talking about trades. If you’re a long-term investor, trader Karen Finerman says buyer beware. “I don’t get the business or the valuations. The barriers to entry are relatively low.”
Looking at the numbers a little more closely. Groupon's operating profit margin was 7 percent in the first quarter, while Wall Street was looking for a 6.5 percent margin, Sinha noted.
Groupon reported first-quarter pro-forma net income, which excludes option expenses, of 2 cents per share, versus a net loss of 41 cents a share, a year earlier. Revenue was $559.3 million, compared with $295.5 million in the first quarter 2011.
Groupon was expected to make 1 cent per share in pro-forma first-quarter earnings, according to Thomson Reuters I/B/E/S. Net revenue was forecast to be $531 million.
Groupon Chief Financial Officer Jason Child said lower marketing expense helped drive profitability. Marketing costs dropped to $117 million in the first quarter from $230 million a year earlier.
Posted by CNBC's Lee Brodie
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Trader disclosure: On May 14, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Brian Kelly is long WFC; Brian Kelly is long USG ; Brian Kelly is long T; Brian Kelly is long VZ; Brian Kelly is short SWEDISH KRONE; Karen Finerman is short AAPL; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long RIMM; Karen Finerman is long HPQ; Karen Finerman is long GRPN put spread; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is short MDX; Steve Grasso is long ASTM; Steve Grasso is long AVAV; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long NUAN; Steve Grasso is long MO; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long XLU; Steve Grasso is long ZAZA
For Scott Nations
Scott Nations is long SPY
Scott Nations is long BAC
Scott Nations is long C
For Amelia Bourdeau
Nothing to disclose
For Clayton Moran
Benchmark makes a market in the securities of the subject company: GRPN
For Herman Leung
Nothing to Disclose
For Larry McDonald
SFG is a market maker in the securities of GRPN
CNBC.com with wires.
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