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Groupon Blames Europe as Stock Plummets

Monday, 13 Aug 2012 | 7:11 PM ET

Groupon is joining the ranks of the companies blaming Europe for its shortfalls. But with the stock falling as much as 20 percent after hours, what investors are focused on is the company’s slowing growth.

Groupon
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Groupon

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Groupon’s revenue came in just short of expectations— $568 million instead of the $573 million Wall Street expected.

Even though that revenue number was 45 percent higher than a year ago, that represents a dramatically slowing revenue growth rate—first-quarter revenue grew 89 percent. And the growth in active customers continues to decline as well—the company only added 3 percent from the first to second quarter, a third of the growth it saw from the fourth to the first quarter.

Earnings came in a nickel better than expected, at 8 cents per share. And the company’s third-quarter revenue projection range of $580 million to $620 million was right on target for the $604 million Wall Street analysts were looking for.

CEO Andrew Mason pointed to economic weakness in Europe for the company’s shortfall, saying that customers aren’t as willing to spring for higher price-point Groupon discounts for things like laser hair removal. In response, he says the company will focus more on offering lower price-point deals, adding that Groupon’s European business should recover even without economic recovery.

Another sign of the slowing growth of Groupon’s core business is that all the growth in North America came from a new business line — Groupon Goods. The direct sale of these products (a contrast to the rest of Groupon’s business, which is about selling services) is creating a new category of revenue, direct revenue, that the company is reporting separately, accounting for it on a gross basis. (Since Groupon has struggled with accounting and transparency issues in the past, this is a topic that drew a number of analyst questions on the earnings call. If all the revenue were accounted in the same way, the top line would not have grown as much as it did.)

Mason stressed the company’s focus on technology to drive efficiencies. Better technology is making deals more personalized, which makes them more appealing to customers. The company’s use of new technology has allowed it to bring down its marketing spend as a percentage of its revenue.

Another strong point for the company: its cash position. Operating cash flow increased 93 percent year over year to $75.3 million. But despite that cash, CFO Jason Child says the company is not interested in buying back stock. And for now at least, it looks like Wall Street isn’t interested either.

-By CNBC's Julia Boorstin
@JBoorstin

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.