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Hi Lou,

Love your message, loyal fan, keep making us smile.

Wondering if you could provide input for a novice investor on Groupon.

Cheers,

JV

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Hey JV,

Thanks for the assignment and your support. Happy to hear that you enjoy my thoughts on the economy and investments. This will be my first go at Groupon Inc. (GRPN Nasdaq). When I was introduced to the concept of online promotional sampling, it made me wonder how long the trend would run.

Generating sampling opportunities is a time honoured marketing tactic, but the trick is the cost of the sample and the probability of converting the deal hunters into customers that are willing to pay full freight for the product. That's why when you generally see sampling at retail, it's usually a spray of perfume or a small piece of cheese on a cracker, not half a bottle of perfume or half a wheel of cheese.

When I have looked at the deals on the GRPN site, they typically boast a substantial discount to regular pricing. From an operator's perspective, the conversion rate of sample to customer has to be substantial to justify the expense. Some of the research indicates that just over 60% of buyers are existing customers, which might not be exactly who you want buying at a discount.

What also needs to be evaluated is what interest Alibaba Group (BABA NYSE) has in the company. On February 16, 2016 BABA bought 33 million shares. For the record, GRPN has over 586 million shares outstanding.

An audit of the charts will help you decide how to proceed with this stock.

Desktop users click on image to enlarge

The three-year chart depicts a stock that has been in decline over the last two years. The jump in 2016 was started on the news of better-than-expected quarterly results released on February 11, just as GRPN hit a 52-week low. On Monday February 16, news of BABA's buying hit the wires.

Desktop users click on image to enlarge

The six-month chart pulls into focus the gap up on February 12th, followed by another gap up on February 16. Since the middle of the month, the stock has broken above the 50 and 200-day moving averages, but it appears there is resistance near $4.75.

If you are bound and determined to chase this stock, make sure it fits your investor profile and that you acknowledge that it's a speculative investment.

Make it a profitable day and happy capitalism!

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