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Groupon Surges on Expected E-Commerce Expansion

Groupon Inc. surged the most in two months amid optimism that its new e-commerce service may expand to more cities, bolstering sales.

The shares advanced 5.4 percent to $5.58 at the close in New York, for the biggest gain since Dec. 7. Groupon has declined 72 percent since an initial public offering in November 2011, compared with a 21 percent increase for the Russell 1000 Index in the same period.

Groupon, operator of the largest daily-deals website, is expanding beyond its coupon roots as some consumers and retailers cool on e-mailed discounts. A local e-commerce marketplace Groupon began a few months ago in Chicago and New York will boost revenue as it expands nationwide over the coming quarters, according to Arvind Bhatia, an analyst at Sterne Agee & Leach Inc.

“Groupon is in the midst of evolving beyond its traditional push e-mail business,” he wrote in a research report today. Bhatia upgraded the shares with a $9 target price.

Customers are pulled into Groupon’s e-commerce marketplace through advertising on search engines, a method that’s more effective than e-mailed discounts because the promotions appear on the screen without requiring users to open messages, Bhatia said. Currently, less than 5 percent of Groupon’s revenue comes from promotions on Web-search sites, he said.

“This marketplace has the potential to become an important growth driver for Groupon,” Bhatia said.

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