Groupon’s Earnings Will Highlight The Progress On Its Shifting Business Model

Groupon’s (NASDAQ:GRPN) stock has rallied from its all time low last quarter and is set to announce its Q4 and FY 2012 earnings on February 27. New business initiatives such as Groupon Goods and the Breadcrumb point-of-sale (POS) system has led the recovery, and we expect Q4 earnings to show the results of its changing business model. The company has introduced enhancements to the POS system with features such as inventory management and even acquired a real time location sharing maker, Glassmap, to enhance its location based deal business, Groupon Now!.

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Groupon Goods Will Stabilize Revenues

Groupon Goods is a move away from its traditional deals business as the company is trying to achieve more stable revenue growth, something that the volatile daily deals business has not been able to deliver. While the e-tailing business may provide stable revenues, it is likely to hit the margins as this is a lower margin business than the deals business.

Groupon released an outlook for Q4 2012 and expects revenue to be between $625 – $675 million, an increase of 27-37% y-o-y. Income from operations for Q4 2012 is expected to be between $0 to $20 million, compared with a loss of $15 million in Q4 2011. As it streamlines its international business along the lines of its North American business, we expect revenues to grow.

New Business Growth Key For Q4

This earnings release for Groupon may be a sign of things to come in 2013. While predominantly a daily deals site, Groupon has rolled out a number of promising tools and services targeted at local businesses. See: Groupon Aspires To Become ‘OS For Local Business’ With Breadcrumb Enhancements. The company is offering services and platforms with the hopes of becoming the ecosystem for local businesses. The payments services will help its customers process Groupons easily and receive payments quickly while the iPad-based POS will enable merchants to set up payment and sales systems for much cheaper than traditional POS services.

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 $4 Trefis price estimate for Groupon, which stands nearly 30% below its market price. 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 many clones.

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