Groupon Inc (GRPN) Healthy Now, But Long-Term Outlook Still Hazy

Groupon Inc (GRPN) Healthy Now, But Long-Term Outlook Still Hazy
By GrouponRUS (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Groupon Inc (NASDAQ:GRPN) is scheduled to announce its fourth quarter earnings on Thursday, February 20, 2014 after the market close. Ascendiant Capital Markets analyst Edward Woo said in a research note that the Chicago-based company’s stock buyback program, new CEO, and heavy investments may support its stock in the short-term. But Groupon’s long-term outlook remains hazy.

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Groupon’s Q4 earnings likely to be in-line with consensus

The local e-commerce marketplace company forecasts Q4 revenues between $690-$740 million with $10-$30 million in operating income and 0-2 cents in EPS. Wall Street consensus estimates Groupon Inc (NASDAQ:GRPN)’s December quarter revenue of $718 million with 2 cents in earnings. The company likely witnessed solid growth in its Goods business due to the holiday season. But its daily deals business is expected to have declined 5% QoQ.

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Ascendiant Capital Markets expects Groupon Inc (NASDAQ:GRPN) to provide first quarter guidance in line with the consensus estimates. Wall Street forecasts Q1 2014 earnings of 6 cents with $669 million in revenues. During the third quarter of last year, the company’s revenue growth slowed to 5% from 7% in Q2 on an annual basis. But Groupon’s gross billings growth remained flat, registering 10% growth in Q2 and a similar annual growth in Q3, 2013.

Groupon Inc (NASDAQ:GRPN)’s Goods business jumped 5% QoQ during the third quarter. But its daily deals business shrank 6% in the same period. The Chicago-based company’s domestic revenues jumped 24% during Q3, but its international business plunged 15%. Edward Woo says the company’s gross billings and revenues are likely to grow in Q4 due to holiday sales, but the growth rate is likely to moderate from the last year.

Groupon still has a long way to go

Last year, Groupon Inc (NASDAQ:GRPN) named Eric Lefkofsky as its new CEO. The company also announced a $300 million stock buyback program. The two events should increase short-term optimism for the company. Groupon is investing heavily as it attempts to transform itself into a full-fledged local e-commerce marketplace. Its recent initiatives are focused on improving the long-term growth prospects, but the incremental costs are highly likely to affect its near-term earnings.

Recently, Groupon Inc (NASDAQ:GRPN) acquired Korean e-commerce company Ticket Monster for $260 million, and Ideeli for $43 million. Groupon has stabilized its business in the U.S., and is trying to do the same in international markets. But Edward Woo still sees multiple uncertainties due to increased investments, fierce competition and staff turnover. Of course, its business outlook has improved. But Ascendiant Capital Markets believes that Groupon is still away from the consistent path to growth and profitability. The research firm has a Sell rating on the stock with $8 price target.

Groupon Inc (NASDAQ:GRPN) shares fell 2.32% on Friday to close at $10.51.

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