Groupon (GRPN) To Report Q1 Earnings: What's In The Offing?

Groupon Inc. (NASDAQ:GRPN) is set to release first-quarter 2018 results on May 9.

This daily deals website operator has a mixed record of earnings surprises in the trailing four quarters, recording an average earnings surprise of 59.26%.

In fourth-quarter 2017, Groupon reported mixed results. Non-GAAP earnings of 7 cents per share missed the Zacks Consensus Estimate by a couple of cents. However, revenues of $873.2 million surpassed the Zacks Consensus Estimate of $861 million.

The Zacks Consensus Estimate for earnings is pegged at break even.

For first-quarter 2018, management anticipates revenues “just below $600 million”. The Zacks Consensus Estimate is pegged at $604.6 million, above management’s guidance, reflecting year-over-year decline of 10.24%.

The company anticipates gross profit to be flat on a year-over-year basis and come in “a bit below $310 million”. Adjusted EBITDA is projected to be in the mid-$30 million range taking into account the marketing investment for the campaign with Super Bowl.

Notably, Groupon stock has lost 6.2% year to date, underperforming industry’s rally of 19.6%.

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

Factors at Play

Prioritizing its ‘vision of building the daily habit in local’, the company has entered into strategic collaborations with companies like ParkWhiz and Comcast Corporation (NASDAQ:CMCSA). These deals are helping the company to enhance its product features, adding functionality to the application and enriching user experience.

Further, partnerships with Gold Star, Expedia (NASDAQ:EXPE), Live Nation, Viator and Fanxchange are helping Groupon to cater to just about any local need, consequently aiding the company to rapidly penetrate the market. This is another key catalyst.

Notably, the company’s partnership with Grubhub allows customers order food from Grubhub’s partner restaurants on Groupon’s platform. This is another key revenue growth driver.

Moreover, the company has completed its integration with American Express (NYSE:AXP) as part of its Groupon+ product offering, thereby providing users with additional discounts. With the help of such deals, Groupon is likely to expand its clientele. The company currently has three leading payment networks in North America along with Mastercard and Visa.

Top Line to Remain Under Pressure

Groupon has been trying to reduce its dependence on goods deals and is shifting its focus toward local services market. Local services market is a high margin business while goods deals bring in high revenues but have smaller margins.

The transition is hurting the company’s revenues as reflected in its fourth-quarter North American top-line performance, which witnessed a year-over-year decrease of 11.7%. Although the strategy will boost Groupon’s margins, we expect the strategy to negatively impact its revenues in the to-be-reported quarter.

The Zacks Consensus Estimate for revenues from North American Goods division is pegged at $193 million for the first quarter, reflecting a decline of approximately 35.5% year over year.

What Does the Zacks Model Unveil?

Our proven model shows that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Sell-rated stocks (4 or 5) are best avoided, especially when the company is seeing negative estimate revisions.

Groupon has a Zacks Rank #3 and an Earnings ESP of -162.5%, which makes surprise prediction difficult.

Stocks with Favorable Combination

Here are a few stocks from the broader technology sector, you may want to consider as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Yelp Inc. (NYSE:YELP) , The Trade Desk Inc. (NASDAQ:TTD) and Pure Storage, Inc. (NYSE:PSTG) each has a Zacks Rank #3 and an Earnings ESP of +18.45%, +11.87% and +8.33%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

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