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Groupon Falls After Unexpected Tax-Related Quarterly Loss

Andrew Mason, chief executive officer of Groupon Inc., at the opening bell of the Nasdaq MarketSite in New York on Nov. 4, 2011. Photographer: Stephen Yang/Bloomberg

Groupon Inc., the largest daily-deal site, tumbled as much as 14 percent today after reporting a tax-related fourth-quarter loss that analysts hadn’t predicted.

Groupon fell 10 percent to $22.04 at 9:57 a.m. New York time after yesterday reporting a loss, excluding certain costs, of 2 cents a share. Analysts surveyed by Bloomberg had projected profit of 3 cents. Today’s is the biggest intraday decline since Nov. 23. The company priced its initial public offering at $20 a share Nov. 3.

Groupon, based in Chicago, has expanded to 47 countries and set up a new international headquarters in Switzerland. That contributed to a higher-than-expected $34.8 million in taxes, Chief Financial Officer Jason Child said. Taxes related to overseas operations will go down over time, he said.

“Their effective tax rate is extraordinarily high, and it seems like using a normal tax rate you would have had a better-than-expected outcome,” said Clayton Moran, an analyst at Benchmark Co. in Delray Beach, Florida, who has a “buy” rating on Groupon shares.

Groupon’s loss compared with one of 53 cents a year earlier, the company said yesterday in a statement. Revenue rose to $506.5 million from $172.2 million. Analysts surveyed by Bloomberg had projected, on average, sales of $472.6 million.

Some analysts were disappointed that Groupon failed to give updates on some of the business benchmarks it has previously provided, including its total number of subscribers and the amount of coupons sold on its site, said Herman Leung, an analyst at Susquehanna International Group in San Francisco.

Vanishing Milestones

In the fourth quarter, Groupon’s active user base rose to 33 million. Groupon spent $156.5 million marketing its service to customers in the period, down from $200.9 million a year earlier. The company said in an October regulatory filing that it plans to “significantly” reduce online marketing spending over time, as such investments yield insufficient returns.

Other expenses are poised to rise. Chief Executive Officer Andrew Mason plans to boost technology hiring to develop new products, he said on a call with analysts. The company aims to beef up its engineering staff to more closely resemble Silicon Valley businesses.

“We are still far under-indexed in terms of our technology headcount, compared to traditional California-based technology companies,” Mason said. “We expect to continue to invest aggressively.”

The company spent a record $14 million on capital expenditures last quarter. Groupon has opened a new data center to power its operations, Child said on the call.

International Sales Growth

Groupon boosted revenue overseas faster than in North America, more than tripling international sales to $318 million from $83.9 million a year earlier. North American revenue doubled to $188.5 million from $88.4 million.

“If you look at the revenues by geography, North America came in a little bit light,” Ken Sena, an analyst at Evercore Partners in New York, said in an interview.

Sales in the first quarter may increase to $510 million to $550 million, the company said on the conference call. Analysts had predicted $500.8 million. Income from operations may be $15 million to $35 million, Groupon said.

The company makes money by selling discounts -- known as Groupons -- from a variety of merchants. It then splits the revenue with those businesses.

Competitors such as Yelp Inc. and Facebook Inc. scaled back efforts last year to vie with Groupon in the market for daily deals, which research firm BIA/Kelsey estimates will generate $4.17 billion in 2015.

In September, Groupon restated its revenue figures to exclude sales passed on to merchants. In its earlier accounting, Groupon counted the total amount of its daily-deal sales as revenue, including fees paid to the businesses.

Download: Earnings

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