Groupon Earnings Preview: What Wall Street's Saying

NEW YORK (TheStreet) –– Groupon's (GRPN) second quarter will highlight how the company is trying to remake itself from a daily deals Web site into an e-commerce company that can compete with the likes of Amazon (AMZN), even if that transformation continues to take longer than expected by investors. 

In the first quarter, buoyed by acquisitions, Groupon saw revenue growth of 26% year over year, as well as a 29% increase in gross billings growth. Sales were $757.6 million. The company reported an adjusted loss of 1 cents a share but the results were better than analysts' expectations. 

Following the results, Groupon raised its full-year adjusted EBITDA guidance to $300 million as it seeks to boost its first-party (1P) business and shift away from its third-party (3P) business, which has higher gross margins.

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Groupon, now led by Eric Lefkofsky, who took over for Andrew Mason in February 2013, has made it his priority to boost the company's three key drivers, which both Groupon's board and Lefkosky see as beneficial over the long haul. These initiatives include boosting the Local business in North America and around the globe, and boosting gross margins at its Goods business, which is where it is competing with Amazon and other e-commerce companies.

While the company remakes itself, it is also trying to retrain its customers, noted Sterne Agee analyst Arvind Bhatia. The company is trying to change its business model to "pull" from "push." "This means that Groupon is essentially trying to retrain its customers to check the company's Web site for its worldwide Marketplace of 200,000 active deals (and growing) and not just when prompted via an email or a push notification within the Groupon app," Bhatia wrote in a research note, stating that "pull" represented 9% of transactions in the first quarter, up from 8% in the fourth quarter of 2013 and 6% in the third quarter of 2013.

Analysts surveyed by Thomson Reuters expect Chicago-based Groupon to earn an adjusted 1 cent a share on $761.8 million in revenue in the second quarter.

Going into the report, analysts were slightly cautious. Here's what a few of them had to say:

Sterne Agee analyst Arvind Bhatia (Buy, $12 PT)

"We believe GRPN will report 2Q results in line with expectations. Investors will be looking for signs of improvement on three key metrics-revenue growth in Local, improvement in Goods gross margins and, progress in international operations. We recommend shares of GRPN for longer term investors for the following reasons: 1) GRPN's large addressable market; 2) the potential for turnaround as execution improves and; 3) attractive valuation (2x 2015E revenue vs. peer group at 7x)."

Piper Jaffray analyst Gene Munster (Overweight, $16 PT)

"We remain positive on shares of GRPN. Groupon reports earnings on Tuesday (8/5) and we expect June revenue inline with the Street, likely driven by the goods business with earnings a wild card given that gross margin is heavily influenced by the goods/deals mix. Based on our tracking of listings (local deals), we believe local deal growth started slow in the June quarter and has accelerated into our most recent reading, which was August 4. Our tracking of goods is limited at this time. Given investors have been through the goods-to-deals mix fire-drill in the past, we believe if there is margin disappointment the impact to shares of GRPN would be minimal. As for guidance, we expect the company to reiterate the long term deals marketplace goal, with fluctuations in profitability driven by a the mix of goods and local deals."

Ascendiant Capital analyst Edward Woo (Sell, $5 PT)

"We expect Q2 results about inline with our estimates, for revenue of $760 million and EPS of $0.02, and consensus, for revenue of $762 million and EPS of $0.01. Q2 guidance is for revenue of $725 - 775 million, and EPS of $0.00 - 0.02. We believe that Groupon likely had continued high growth in its Goods business (due to its recent acquisitions), offset by declines in the daily deals industry in Q2 (which we estimate was down 10% from Q1)."

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-- Written by Chris Ciaccia in New York

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