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RetailMeNot Stock Is a Strong Buy Thanks to Mobile Coupon Might

The website RetailMeNot (SALE) isn’t quite as popular as some money-saving sites like Groupon (GRPN) or LivingSocial, but this Internet stock with a market cap of $1.7 billion is the real deal.

That’s why after the recent RetailMeNot IPO — priced at $21 a share and opening at $26.50 on its first day of trading — investors should consider taking a stake in SALE stock.

SALE stock is up double-digits from its first truly tradable moments on the open market, and up more than 40% from its IPO pricing. It’s no surprise why, because while Groupon struggles just to break even, there are firm profit projections ahead for RetailMeNot stock. That means SALE isn’t as panicked or as under pressure from shareholders.

Recent RetailMeNot earnings were strong, with Q2 revenue up 44% to beat expectation. There was a big loss because of a preferred stock dividend, but going forward, RetailMeNot won’t have to worry about that one-time expense holding back profits. Excluding expenses related to stock dividends, net income was $5.12 million — down from last year but only because of increased investments in product development, as well as sales and marketing.

RetailMeNot already is the market leader by a wide margin in the fragmented digital coupon space, and considering the move away from the quaint exercise of clipping coupons from a newspaper, this is a powerful industry to be at the front of.

And bigger-picture, it’s obvious why businesses would buy into RetailMeNot. They only pay referral commissions after a sale is made, instead of an up-front cost. That means merchants don’t have to spend big money to get exposure — a plus in this challenging consumer spending environment.

International operations of RetailMeNot are growing strong, consumers are desperate for deals in these challenging times … what’s not to like about SALE stock?

The risk, of course, is that RetailMeNot stock’s valuation is very high since right now the company isn’t putting up big numbers. The run-up after the IPO means that SALE stock has some of the optimism priced in, so investors need to tread carefully.

There’s also fear of disruption by competitors. Cash-back and coupon apps or loyalty rewards websites are popping up all over the place either as startups or through social networks such as Facebook (FB). Also, Google (GOOG) is getting in on deals with Google Offers, and current SALE competitors include Groupon and LivingSocial, in which Amazon.com (AMZN) owns a minority stake. It might be difficult for RetailMeNot to fend off the might of companies like FB, Google and Amazon in the long run.

But for now, RetailMeNot is looking up, particularly because its second-half outlook is strong after earnings and because it continues to grow mobile penetration.

That’s clearly where digital couponing needs to be — with folks scanning their smartphone instead of printing out offers on their inkjet.

Related Reading on RetailMeNot

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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