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Groupon (GRPN) Q2 Earnings: Will it Pull Off a Surprise?

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Groupon Inc. (GRPN - Free Report) is set to release second-quarter 2017 earnings on Aug 2. We note that the company has delivered positive earnings surprises in the preceding four quarters, resulting in an average positive surprise of 87.32%.

In the last quarter, the company reported loss of 2 cents per share compared with the Zacks Consensus Estimate of a loss of 5 cents. Revenues of $673.6 million missed the Zacks Consensus Estimate of $717.1 million and also declined 3.6% on a year-over-year basis.

Management expects EBITDA to decline sequentially as the company plans to continue its investments in marketing and offline campaigning activities. However, EBITDA is expected to increase year on year.

Notably, the company has underperformed the industry it belongs to on a year-to-date basis. While the industry gained 50.9%, the stock returned 14.5%.

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. It intends to shift its focus on local business from goods. In the first quarter, the company reduced its country presence to 15. This is anticipated to be a positive as it gives it the ability to focus more on the better performing zones.

Notably, in the last reported quarter, the company added 500K new customer in North America, thereby adding to its revenues from the region. North American gross profit also increased 2.3%.

Moreover, expansion of adjusted EBITDA margin to 6.6% and a decline in operating expenses and operating loss indicate the successful implementation of the company’s streamlining initiatives.

Groupon, Inc. Price and EPS Surprise

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

We believe that the shifting of Groupon Goods from a lower-margin focused business to a higher-margin business will boost profitability. However, competition from giants like eBay (EBAY - Free Report) and Amazon remains a concern.

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 (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:

Kemet Corporation (KEM - Free Report) with an Earnings ESP of +11.1% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology, Inc. (VSH - Free Report) with an Earnings ESP of +6.1% and a Zacks Rank #1.

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