Feb 28, 2013 · 4 minutes

There's no way around it. From an investor standpoint, the financial performance Groupon delivered in its most recent earnings report is a disaster. But Groupon is keeping its chin up, presenting a game face to investors as if to say: Hey, growth in our market can get messy. Like, you know, the way fast-growing startups can be messy.

And messy it is. Although Groupon posted revenue of $638 million the last three months of 2012, up 30 percent from a year earlier and in line with analyst expectations, it showed a net loss of 12 cents a share, while the Street had been looking for a three-cent profit. That's a substantial disappointment, and a strong sign that things aren't turning around nearly as quickly as the company had hoped.

Looking ahead, it could get even worse. Groupon said revenue this quarter would be between $560 million and $610 million. That's well below the $650 million analysts had been forecasting and the lower end of that range would be flat with the year-ago number. In other words, Groupon could see no year-on-year growth this quarter. It could also post another operating loss, as large as $10 million, the company said.

Analysts were polite on the conference call, asking questions about things like gross margins and revenue guidance with matter-of-fact voices. But investors spoke more forcefully in the after-hours market. Groupon's stock was trading at $4.42 a share late Tuesday, erasing a billion dollars from the company's market value in a matter of minutes, or about a quarter of what it was worth before it delivered the bad news

For most of the day, investors had their own chin-up attitude toward the stock, which rose 8 percent during official market hours to close at $5.98 a share, the highest closing price since August. Groupon had been seen by some fund managers as a promising comeback kid as it moved into direct sales and trimmed its exorbitant marketing costs.

CEO Andrew Mason and chief operating officer Kal Raman hewed to the vision Groupon is trying to make real. Expanding not just a new service but a new category of retail cut from whole cloth. Hell-bent on world domination. To reach that goal, Groupon was handholding countless new merchants, spurring consumers into buying stuff they didn't know they wanted, and – most importantly, or so Mason said on the conference call – keeping shareholders happy.

In Groupon's version of things, the company is taking a page from Amazon by laying claim to a new area of retail – first the group discounts for local businesses, then more recently direct e-commerce deals on goods like clothing, gadgets and furniture – and building it out so aggressively it dominates market share early on. Only Groupon would be Amazon on steroids, growing so quickly it meant slipping now and then into red ink. The mess that precedes success.

So of course there would be speed bumps. Groupon navigated them, often after the fact, but it navigated them. It slashed marketing costs to 10 percent of revenue this quarter from 32 percent a year earlier, reducing the cost of acquiring new customers. Its spending on international markets failed to pay returns, so it's vowing to make international more efficient. Or, in plain language, cut jobs and costs abroad.

Such is the Groupon version of things. Then there was the other version of things – the story told by the numbers. International revenue declined 16 percent to $263 million. A year ago, international revenue was growing by 273 percent. Back home, it's giving a bigger share of revenue to merchants to keep them happy.  Groupon Goods, the newer direct-sales unit, has quickly accounted for 35 percent of revenue, but it's killing margins.

Gross margins from third-party coupons stand at 84 percent in North America, but they are 6 percent for Groupon Goods. Internationally, gross margins for Goods is even more distressing – negative 40 percent – although Groupon says it expects them to move closer to the North American figure over time.

Most troubling for investors are the cash flow numbers. Free cash flow, a measure of a company's ability to support itself through cash from operations, fell to $26 million from $155 million a year ago, a drop of 83 percent. Groupon is still generating cash, but it's at risk of becoming a company that burns through it.

In short, the numbers inside Groupon's earnings report don't suggest so much the image of a company that is hitting a series of speed bumps. It's closer to driving recklessly along the shoulder of the road until your car is stuck in a ditch and getting out and wondering if you'll have to call a tow truck. The 26-percent decline in its stock price today reflects that concern.

Groupon's aggressive, high-risk approach to growth has left a lot of unanswered questions over its operations: Can it succeed internationally? How long will it spill red ink? Will it generate or burn more cash in the long run? But the biggest question concerning its stock is this one: How long does the company have before investors lose patience with the company and dump their shares?

A lot of influential investors bought into the Groupon comeback story – many of them during past few months as the stock doubled to $6 a share. Hedge funds like Tiger Global, Goatue and Silver Lake were among the most aggressive buyers.

If Groupon, as many expect, replaces Mason with a new CEO, it can buy more time for a turnaround. It can keep making its optimistic case for better times. But unless the numbers back up that positive story, it may be a matter of time before things get messy in a way that Groupon doesn't want.

(Photo courtesy of kevinkrejci on Flickr.)