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Factors Expected to Influence Groupon's (GRPN) Q3 Earnings

Zacks Equity Research
Updated

Groupon Inc. GRPN is set to release third-quarter 2018 results on Nov 7. Notably, Groupon missed estimates in two of the trailing four quarters, recording average negative surprise of 18.52%.

Groupon reported disappointing second-quarter 2018 results. The company posted non-GAAP earnings of 2 cents per share, which missed the Zacks Consensus Estimate by a penny. Further, the figure remained flat on a year-over-year basis.

Revenues of $617.4 million declined 6.8% on a year-over-year basis (9% at FX neutral), lagging the Zacks Consensus Estimate of $631 million.

What to Expect?

For the third quarter, the company envisions revenues to be around $600 million. The Zacks Consensus Estimate for revenues is pegged at $602.8 million, reflecting year-over-year decline of 5%.

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Further, the Zacks Consensus Estimate for earnings is pegged at 3 cents per share, reflecting year-over-year increase of 200%.

Let's discuss the factors likely to influence third-quarter results.

Factors at Play

Management noted that its new offering Groupon+ is being well received as the company is enriching customer experience by investing in voucherless initiatives. This is expected to be a catalyst going ahead.

The company’s partnership with Grubhub (GRUB) continues to enable customers to order food delivery from more than 80,000 restaurant partners of Grubhub via Groupon platform.

Further, partnerships with CoreSource, American Express, Major League Baseball, among others are helping the company to cater to just about any local need, consequently aiding it to rapidly penetrate the market.

With a proper mix of products and accelerating consumer activities, management anticipates growth going forward.

The company had approximately 17.1 million active customers internationally as of Jun 30, 2018.

Additionally, Groupon is rapidly penetrating the market on the back of its collaborations with Gold Star, Expedia, Live Nation, Viator and Fanxchange, which are helping the company to cater to just about any local need. The company’s acquisition of Vouchercloud is also anticipated to help it boost the international coupon business.

However, of late, Groupon has been trying to reduce its dependence on goods deals and is shifting focus toward local services market. This is because the local services market is a high margin business while goods deals bring in high revenues but smaller margins. The transition is hurting the company’s revenues and is anticipated to remain a drag in the to-be-reported as well.

Recently, International Business Machines demanded $167 million from Groupon for the unauthorized use of its patented technology. This lawsuit from IBM is likely to hurt margins in the near term.

Groupon, Inc. Price and EPS Surprise

 

Groupon, Inc. Price and EPS Surprise | Groupon, Inc. Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Groupon currently has a Zacks Rank #3 and an Earnings ESP of 0.00%.

Stocks That Warrant a Look

Here are some stocks that you may want to consider as our model shows these have the right combination of elements to deliver an earnings beat in its upcoming release.

Match Group, Inc. MTCH has an Earnings ESP of +3.59% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adobe Systems Incorporated ADBE has an Earnings ESP of +0.19% and a Zacks Rank #2.

Etsy, Inc. ETSY has an Earnings ESP of +76.27% and a Zacks Rank #2.

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