Groupon (NASDAQ:GRPN) will announce its earnings for the second quarter of 2012 on August 13. The stock has taken a beating following the restatements, accounting errors, SEC probes and shareholder lawsuits. We expect lower revenues due to higher refund amounts set aside by the company as it sells more expensive deals such as vacation packages and botox procedures. We expect revenues from its hyperlocal deal service Groupon Now! to be a high growth segment. It is also diversifying into other businesses like setting up online presence for smaller businesses by providing services such as online booking websites and scheduling tools. It also plans to establish a “local trading” platform for small and medium businesses to connect and trade as well as acquire customers.
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This earnings release for Groupon may be a sign of things to come in 2012. Groupon has always shown impressive revenue growth, but the mounting operating expenses is an area of concern. While Groupon has a near monopoly in the daily deals market, there is increasing competition in the space which could lead to competitive pricing and margin pressures weighing on its revenues. The relatively low barriers for entry in this space is also a concern and to maintain its competitive advantage, we expect Groupon to continue to incur marketing expenses which will weigh on its earnings.
While predominantly a daily deals site, it has rolled out a number of promising tools and services targeted at local businesses. Some of these services are Groupon Now!, a hyper-local location based mobile service, Groupon Scheduler and Groupon Rewards. It is expected to roll out a complete portfolio of marketing and other services eventually for small businesses.
While the traditional metrics for its core businesses are a primary concern, we will keep a close eye on Groupon’s long-term strategy and its new initiatives, which should drive growth for its daily deals offering, going forward.
We currently have a $14 Trefis price estimate for Groupon, which stands nearly 35% above its market price, which is hovering near its all-time low. Daily deals account for a major portion of its overall value. It competes primarily with LivingSocial backed by Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) Offers, Yelp (NYSE:YELP) and countless clones, but is looking to expand its offerings in other categories to diversify its revenue streams and drive its core daily deals business.