Groupon Inc (GRPN), Pandora Media Inc (P): One Stock to Buy, One to Avoid

It seems the dark days of Groupon Inc (NASDAQ:GRPN) are over. The company’s share price closed with a gain of 11.52% on Friday and has gone up almost 57% year-to-date. Groupon Inc (NASDAQ:GRPN) is a website that features discounted gift certificates offered by companies, and acts like a marketplace that connects merchants to consumers. The company allows its customers to deal directly through its website and mobile application. To make its offers more enticing for customers, the company is also offering perks to merchants e.g. Groupon Payments.

Mobile service a key revenue driver

North America is a leading marketplace for Groupon Inc (NASDAQ:GRPN). In the first quarter, the company reported revenues of $601 million, up 8% from $559.3 million a year ago. Although revenues from North America rose, international revenue declined by 18%. In the North American region, sales from the use of the mobile application increased to 45% of total revenue from 30% a year ago, which shows that Groupon is getting a lot of traction from mobile. According to Reuters, Groupon expects revenue in the range of $575 million to $625 million for the current quarter, while analyst estimates vary around $616 million.

Strategic shift

CEO and Co-founder Andrew Mason was replaced in February by Co-founder Eric Lefkofsky and board member Ted Leonsis. The market is bullish about this management change, and expects the new management to make positive changes. Groupon Inc (NASDAQ:GRPN) has a new strategy to pull potential customers as opposed to pushing them by sending a large number of emails.

The recent changes have encouraged Deutsche Bank Analyst Ross Sandler to upgrade its rating from hold to buy. He raised the target price from $6 to $10. Sandler suggested that Groupon Inc (NASDAQ:GRPN)’s billings can increase 20% by adopting a pull strategy and emphasizing the use of mobile devices.

High content costs

Other North American companies relying on internet advertisement have also been struggling to generate profits. Pandora Media Inc (NYSE:P) provides radio services to people living in North America. In the first quarter of 2013, Pandora Media Inc (NYSE:P) reported total revenue of $125.5 million out of which mobile revenue is $83.9 million, which is about 66.9% of the total revenue. Despite a minute increase in Pandora Media Inc (NYSE:P)’s revenue, net loss continued to surge and reached $28.6 million, up from $14.6 million in the last quarter of 2012.

This increase is due to higher operating and business cost. Despite the continued losses, the market is still bullish on Pandora Media Inc (NYSE:P) and according to a Forbes’s analyst, the company can post 48% growth in revenue and also turn profitable.

Sirius XM Radio Inc (NASDAQ:SIRI) is the primary competitor of Pandora Media Inc (NYSE:P). While Pandora is struggling, Sirius has achieved solid revenue and profit growth. In the first quarter, Sirius reported revenue of $897 million, up 14% year-over-year and net income of $124 million up 15% year-over-year.