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Groupon (GRPN) Shares Gain Big Despite Mixed Bag in Earnings Report

Since its IPO, Groupon (GRPN) has been the poster child for the worst excesses of the market for social media stocks. Facebook (FB) continues to present the apogee both in terms of user

a wide variety of upstarts spur questions of just how much the larger players should be willing to buy them up.

Groupon, though, always stood out as the one company that was pretty easy not to like. Unlike Twitter, which can often stand as a sort of wedge issue between the tech-friendly young Turks insistent on looking at these companies in terms of their potential and users rather than profits, and the old school that sees high prices for stocks that haven’t shown a profit, Groupon was the one everyone could agree on. This company’s not what it needs to be.

It’s Halloween, Maybe It’s Ghosts Buying These Shares?

Despite a Q3 earnings report that showed (another) loss, the company’s stock is up close to 25% in Friday’s trading. Why? This comes despite the company saying au revoir to $21.2 million, a loss of $0.03 a share against analyst expectations of a $0.01 per share loss. It also comes despite guidance for Q4 coming in well below analyst forecasts, with the company predicting earnings of $0.02 to $0.04 a share on $875 million in revenue despite Street expectations of $0.07 a share in earnings on $925 million.

That could partially be due to Q3 revenue, which was up 27% year-over-year to $757.1 million and beat analyst expectations of $748.8 million. Certainly, a willingness to overlook present earnings in favor of growing revenue is pretty much page one of the tech-investor playbook. There was also plenty of growth in gross billings (up 39% to $1.86 billion) and gross profit (a 5.7% increase to $380.1 million). The company also managed to post a profit in its earnings adjusted for stock options and amortization of $0.03 a share, ahead of Wall Street’s expectations of $0.01 a share.

More important, though, is the shift the company is taking from emailing daily deals to becoming a more complete e-commerce site. The rollout of new features like Pages, a business-listing section that includes hours and contact information, were a part of that. Additionally, growth prospects in Asia remain strong, giving investors plenty of hope.

Is Groupon’s Gain a Dead Cat Bounce?

However, exactly what to make of Groupon’s big Halloween is hard to say. The company remains down, way down, from its 2011 IPO, holding a little over a quarter of the market value it debuted at. And, despite gaining back some of that value it lost over the course of 2012 and 2013, the stock has been hit hard again this year, losing almost half of its market value in 2014 prior to today’s big bounce.

So is this the sign of turning over a new leaf? Or simply value buyers looking for a deal and getting desperate? There are plenty of factors to consider.

The naysayers will observe that the company has never turned a profit, something that’s getting harder and harder to overlook as we approach two full years since its IPO. There’s also the fact that Groupon’s short float of over 17% could mean that even mildly positive news can produce a decent pop. With the year’s losses for the stock, plenty of short positions could have viewed this as the best time to close their positions, amplifying the stock rebound some.

However, the company does also appear to be making good on its promise of a real shift. The rocky start to its existence, with wild-child CEO Andrew Mason demonstrating himself to be totally incapable of guiding the company and having to leave in February of 2013, just about a year after the company’s IPO, clearly has a lot to do with the hard fall; but, if/when the stock really finds bottom, the core business could still have potential. As such, rising numbers in revenue, active users, and bookings could all indicate that despite falling flat on its face out of the gate, the company may be finding stride as a public company.

At the very least, Groupon’s status as the soap opera stock of the social media segment may be coming to a close. If it can maintain its current trajectory for a few more quarters, anyone buying in now could be pretty happy they did.

Stories like Charlie Munger’s inspire me. It shows why you must live life as an optimist.