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What to Expect from Groupon (GRPN) this Earnings Season?

Groupon, Inc.GRPN is set to release first-quarter 2016 results on Apr 28. In the last quarter, the company reported a positive earnings surprise of 60.00%. The company delivered positive earnings surprises in three of the last four quarters, with an average positive earnings surprise of 40.00%.

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

Factors to Consider

Groupon is now undergoing a business transition as it shifts its focus from rapid international expansion to developing local core business. After a sluggish performance in 2015, the company finally found a new growth track when CEO Rich Williams took over the helm in Nov 2015. His novel business strategy (with core focus on marketing, international and shopping) appears to be working for the company. Its performance has started to improve since the last quarter wherein it beat expectations on both counts.

Furthermore, the company got a boost in Feb 2016 when Alibaba purchased about 33 million shares or a 5.6% stake in Groupon.

In Mar 2015, the company unveiled a slew of new updates for smaller merchants including a whole new app named “Groupon Merchant”, designed to allow merchants to track and handle their Groupon campaigns including redemption of Groupons, monitoring of daily deals and even answering customer service inquiries.

However, Groupon is investing quite a bit in the transition, which is expected to affect its near-term financials. Moreover, along with the restructuring, the company is also trying to revive a part of its daily deals business (through various offerings for merchants), which was not the part of the restructuring program.

Apart from significant competition from giants like eBay and AMZN, Groupon is entangled in a few lawsuits, which remains a headwind. In February, IBM Corp. IBM had filed a patent infringement case against the company.

Earnings Whispers

Our proven model does not conclusively show that Groupon is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 8 cents per share.

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

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

Stock to Consider

Here is a company that has the right combination of elements, according to our model, to post an earnings beat this quarter:

Silicon Motion Technology Corp. SIMO with Earnings ESP of +7.27% and a Zacks Rank #1 (Strong Buy).

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INTL BUS MACH (IBM): Free Stock Analysis Report
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