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Groupon has much to prove and even more to lose

Groupon is expected to report its fiscal second-quarter Monday. Groupon is coming off a better-than-expected first fiscal quarter, but its otherwise disappointing performance since going public in November has sent its stock price tumbling.

Charles Rex Arbogast/AP

Battling hundreds of competitors and facing some deeply skeptical investors, the world's most popular online coupons company will report its quarterly earnings on Monday.

Groupon, perhaps the best-known name in the fast-growing area of daily deals websites – where consumers receive daily notifications of significantly discounted products and services from local businesses – is expected to report its fiscal second-quarter earnings after market close on Monday. Groupon is coming off a better-than-expected first fiscal quarter, but its otherwise disappointing performance since going public in November has sent its stock price tumbling. After reaching a high of about $26 (U.S.) shortly after hitting the NASDAQ in November of 2011, Groupon's stock price has steadily declined, and hovers around $7.40.

The fall from grace is particularly stark given that, less than two years ago, Groupon was one of the most sought-after private companies in the tech world. In late 2010, Google put forward a massive $6-billion bid to purchase Groupon outright, but the company declined, opting instead to file for an Initial Public Offering. Today, Groupon's market value is less than $5-billion.

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Essentially, Groupon makes money by convincing businesses to let it offer its users hugely discounted products and services. In exchange, the business receives a massive influx of Groupon users, some of who will, presumably, continue to frequent the business in the future, purchasing non-discounted items. Groupon makes money by taking a cut of the group-discount transactions. But many users and businesses have raised complaints about the model. Shoppers, who descend on a business in droves to cash in their coupons, often find that business swamped, and the quality of service low as a result.

Such problems are not unique to Groupon – almost every daily deals service operates in the same way. But therein lies Groupon's other problem. The company has little in the way of proprietary technology, and because setting up a daily deals website is far less complicated than most other technology start-ups, the company has seen hundreds of competitors pop up in recent years.

Some of Groupon's recent wounds have been self-inflicted. A year ago, investors and analysts raised concerns that Groupon was using non-standard accounting metrics that showed the company's numbers in a more positive light.

Groupon has managed to show solid revenue and user growth, giving analysts hope it may have turned things around after a bumpy start. And given the company's history, simply meeting earnings expectations and refraining from another accounting controversy could be enough to convince investors to give Groupon a pass.

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