Evaluating Groupon Stock Pre-Q3 Earnings: Buy, Hold, or Avoid?

Core Viewpoint - Groupon is expected to report a decline in revenues for the third quarter of 2024, with estimates indicating a year-over-year decrease of 5-10% [3][8]. Revenue Expectations - For Q3 2024, Groupon anticipates revenues between $114 million and $120 million, with a Zacks Consensus Estimate of $119.02 million, reflecting a 5.89% decline from the previous year [3]. - The consensus estimate for loss is set at 25 cents per share, compared to a loss of 12 cents per share in the same quarter last year [3]. Earnings Performance - In the last reported quarter, Groupon experienced a negative earnings surprise of 100% and has beaten the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 107.77% [4]. - Current indicators suggest that Groupon has an Earnings ESP of 0.00% and a Zacks Rank of 4 (Sell), which does not predict an earnings beat this time [5]. Growth Drivers - Solid momentum in the local category in North America is expected to drive growth, alongside efforts to enhance performance marketing channels and improve supply quality [6]. - Rising demand from enterprise customers and growth in the "things to do" vertical are anticipated to contribute positively to revenue [7]. Challenges - Sluggish performance in goods categories and a weakening international market are significant headwinds, with international revenue estimates at $29 million, indicating an 8.1% year-over-year decline [8]. - The goods revenue estimate stands at $4.56 million, reflecting a 33.5% decline from the previous year [9]. - Ongoing site stability issues related to cloud migration have adversely affected performance [8]. Competitive Landscape - Groupon operates in a highly competitive market, facing challenges from companies like Yelp, Rakuten, Travelzoo, and Wowcher [10]. - Market uncertainties, inflation, recession fears, and changing consumer spending patterns are expected to dampen near-term prospects [10]. Stock Performance - Year-to-date, Groupon's stock has declined by 14.6%, underperforming the Zacks Retail-Wholesale sector, which has returned 25.3% [11]. - The stock is trading at a forward P/E ratio of 29.26X, higher than the Zacks Internet - Commerce industry's 25.36X, indicating a stretched valuation [12]. Operational Considerations - Groupon's struggles in the competitive local commerce landscape raise concerns about sustainable growth, with a declining merchant base and waning consumer engagement [14]. - Recent cost-cutting initiatives may not sufficiently address fundamental challenges, as local merchants shift towards direct-to-consumer strategies [14].