Groupon posts profit, but still not in the clear

A sign marks the location of the Groupon headquarters on November 30, 2010 in Chicago, Ill.

Jeff Horwich: Groupon... oh, Groupon. Shares in the original "daily deals" company this morning continue to be like a traffic accident you can't look away from. Groupon's share price is down 23 percent so far today and about 70 percent from its IPO price back in November.

For more we've got Jack Vonder Heide, president of the tech research firm Technology Briefing Centers. Good to talk with you.

Jack Vonder Heide: Same here Jeff.

Horwich: So Groupon just declared a profit for the first time. This is what people have been waiting for, right? What are investors so upset about?

Vonder Heide: Well, investors in this sector are really looking for exponential growth, and profits and revenues that are way beyond those of any other industry. So while Groupon performed -- in my opinion -- exceptionally well, the Street does not view it that way for this particular sector.

Horwich: Sounds like the Street is how Groupon was making its money. What's the problem there?

Vonder Heide: Well, Groupon got into a different area of business. They're actually selling consumer items as opposed to simply selling deals. And the profitability on these types of transactions tends to be lower than the profitability on daily deals.

Horwich: The wrap on Groupon, even from way before it went public, was that anyone could do this; it was way to easy to replicate. Seems to me that Groupon is still the dominant name in this daily deals business...

Vonder Heide: Oh absolutely. While the concept is simple, the execution is quite difficult indeed, and you've really got to be on top of your game to make it work. And that's where Groupon has really done an excellent job. And as you mention, they are the dominant force. I mean, they're the Band-Aid or the Kleenex of their industry and the service.

Horwich: Clearly, you have plenty of residual belief in Groupon -- but there are many investors think there is something very, very wrong with this company at this point. What do you think they have to do to retrench and get on a better track?

Vonder Heide: Well I think Groupon needs to show consistent profitability. They've done a great job this quarter, in my opinion, but they need to show that quarter after quarter after quarter. And it's going to take time. The second thing they need to do is they need to go further down the path of developing a consultative sales forces rather than a deal-focused sales force. They need to get closer to their merchant customers, and then sharply target the Groupons to address those needs -- more of a rifle approach than a shotgun approach.

Horwich: Jack Vonder Heide, of Technology Briefing Centers -- a man with some faith in Groupon. Thanks a lot.

Vonder Heide: Thanks Jeff.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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