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

Groupon Inc. (NASDAQ:GRPN) is set to release first-quarter 2017 earnings on May 3. We note that the company has delivered positive earnings surprises in the preceding four quarters resulting in average positive surprise of 78.57%.

In the last quarter, the company reported earnings of 3 cents per share as against the Zacks Consensus Estimate of a loss of 2 cents. Revenues of $935 million also beat the Zacks Consensus Estimate of $911 million and inched up 1.9% on a year-over-year basis.

However, we note that first-quarter 2017 guidance was not positive as management expects to report lowest billings and adjusted EBITDA. Nonetheless, Groupon anticipates adjusted EBITDA to be slightly better that the year-ago quarter.

Groupon, Inc. Price and EPS Surprise

The unimpressive outlook has hurt share price momentum, which has underperformed the Zacks Electronic Commerce industry on a year-to-date basis. While the industry gained 27.7%, the stock appreciated 18.1%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Groupon continues to exit international markets as part of its restructuring plans. The exit from non-core markets is expected to aid it focus on key growth areas. The company intends to bring its country count to 15 with respect to its strategy of streamlining business.

The company’s new business strategy (with core focus on marketing, international and shopping) appears to be working. Although overall gross billings dipped slightly in the fourth quarter, billings from North America (Groupon’s core market) advanced 5.9% year over year.

Groupon added nearly 5.2 million new customers in the quarter. Further, apart from exiting non-core markets, the company reduced headcount in North America, which lowered operating loss.

We believe that the restructuring of Groupon Goods from a lower-margin focused business to a higher-margin business will boost profitability. Moreover, improving customer service and net promoter score are positive for brand value.

Groupon’s mobile application was the second most visited retail application in the U.S. in Dec, 2016 trailing only Amazon (NASDAQ:AMZN) according to comScore. We expect the growing adoption of the mobile application to be a strong catalyst going ahead.

Earnings Whispers

Our proven model does not conclusively show that Groupon is likely to beat earnings this quarter. This is because 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. That is not the case here, as you will see below.

Zacks ESP: Groupon’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 4 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Groupon carries a Zacks Rank #3, which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

DragonWave (TO:DRWI) with an Earnings ESP of +8.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Impinj (NASDAQ:PI) with an Earnings ESP of +50% and a Zacks Rank #2.

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