Groupon INc (NASDAQ:GRPN) is expected to report its earnings results from the fourth quarter tomorrow after closing bell. Many investors are expecting to see weak results from that quarter, although a negative surprise on first quarter guidance could send shares lower.


Lowering estimates for Groupon

Morgan Stanley analysts Scott Devitt and Stephen Shin have reduced their estimates for tomorrow’s report because read-throughs from Groupon Inc (NASDAQ:GRPN)’s ecommerce peers have been weaker than expected so far. Their new revenue and consolidated segment operating income estimates are toward the lower end of the company’s guidance.

They reduced their fourth quarter total gross billings growth for North America from 21% to 15%, although they continue to expect local deals growth to accelerate from 13% in the third quarter to 17% year over year in the fourth quarter. The Morgan Stanley team expects the shorter holiday season and weak retail returns during the quarter to negatively impact growth in Groupon Inc (NASDAQ:GRPN)’s Goods segment, which they’re modeling for 10% growth compared to their previous 23% growth estimate.

What to expect in Groupon’s report

They’re expecting to see $705 million in revenue, compared to Groupon Inc (NASDAQ:GRPN)’s guidance of between $690 million and $740 million. That would reflect 10% year over year growth compared to the 5% growth in the previous quarter. They expect Groupon to see better results in Europe and the Middle East and the Rest of World because the comparisons will be easier in those regions. The analysts are also looking for consolidated segment operating income of $48 million, compared to the company’s guidance of between $40 million and $60 million.

Looking ahead, the Morgan Stanley team has revised their estimates to include Groupon Inc (NASDAQ:GRPN)’s acquisition of TMon and ideeli. Both of those acquisitions closed in the current quarter. They’re estimating an additional $1 billion in gross billings from TMon, as well as $141 million in revenue. They also incorporated the 138 million shares issued under the transaction. They estimate that ideeli will add about a $30 million drag on Groupon’s adjusted EBITDA this year. However, they raised their “outer year” EBITDA estimates because they assume both of those acquisitions will add to Groupon’s EBITDA over time.

Groupon rating maintained

The analysts maintained their Overweight rating and $15 per share price target for Groupon Inc (NASDAQ:GRPN). The analysts see a number of positives going for the company, including the conversion to the deal bank, which they believe makes it able to execute against a sizeable addressable market. They also note that Groupon has a strong mobile penetration, demonstrating that the company is a “viable channel to drive local commerce.”