Groupon (GRPN) to Report Q4 Earnings: What's in the Cards?

Groupon, Inc.GRPN is set to release its fourth-quarter 2016 earnings on Feb 15. In the last quarter, the company reported a positive earnings surprise of 25.00%. We note that the company has delivered positive earnings surprises in each of the last four quarters resulting in an average positive surprise of 31.07%.

Shares of Groupon have underperformed the broader Zacks Internet - Commerce industry over the last one year. While the industry gained 57.7%, the stock appreciated 24.2%. The underperformance of the stock could be attributed to intensifying competition and margin pressures due to a slowing revenue growth trajectory over the last couple of years.

Factors to Consider

Groupon operates a shopping website which offers goods and services at a discount in North America and in international markets. It offers deals in health and beauty, retail, services, activities, events, and food and drink.

Groupon continues to exit international markets as part of its restructuring plans. In November, the company divested its Malaysia business. The exit from non-core markets is expected to aid Groupon focus on its key growth areas. The company now operates in 26 countries across the globe, down from 47 countries that it operated in the beginning of 2015. Groupon further plans to exit 11 non-core countries going ahead.

Further, the shopping business (Groupon Goods) has being restructured with the lower-margin (specifically empty calories products) being de-emphasized to increase focus on higher-margin healthy food offerings.

The positive effect of the restructuring plan has started reflecting in financial results. Groupon's third-quarter 2016 adjusted loss (including stock-based compensation and tax impact) of 6 cents per share came in narrower than the Zacks Consensus Estimate of a loss of 8 cents. (Read More: Groupon Divests Malaysia Business, Restructuring On Track .)

Also, during the same time, Groupon launched its first ever holiday TV campaign in its bid to encourage shoppers to "Gift the Experience" that will likely boost the sales of its online listings.

Moreover, the LivingSocial acquisition that the company entered into during the same period will contribute approximately $15 million of revenues and $2 million to $3 million of adjusted EBITDA losses in the to-be-reported quarter.

While all of the above factors are likely to have a positive impact on the company's fourth-quarter results, intensifying competition and impending lawsuits remain major concerns.

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 2 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.

Groupon, Inc. Price and EPS Surprise

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

Stocks to Consider

Here are some companies that, as per our model, that have the right combination of elements to post an earnings beat this quarter:

Applied Optoelectronics Inc. AAOI has an Earnings ESP of +15.87% and sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Ultra Clean Holdings, Inc. UCTT has an Earnings ESP of +7.41% and sports a Zacks Rank #1.

ARRIS International plc ARRS has an Earnings ESP of +1.56% and carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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