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Groupon (NASDAQ:GRPN) will release its Q4 2013 earnings on February 20. We expect strong growth in billings in North America even though the company's international business continues to remain under doubt. The U.S. holiday season saw large discounts being offered by retailers, and Groupon was no exception. The company offered $100 million in Groupon Bucks to its subscribers on Black Friday, and a host of deals helped it deliver its biggest holiday weekend ever. The results from Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) suggest that the key e-commerce companies grew their sales faster than the overall e-commerce market, and we expect Groupon to benefit from this trend. Nevertheless, the company needs to answer a key question: Can it successfully turnaround its business in international markets, which have become increasingly important for the U.S. retailers? To understand this, we look forward to the change in international take rate, billings as well as margins.

Our price estimate for Groupon stands at $6.25, implying a discount of about 40% to the market price.

Groupon Has Made It Easier For Its Subscribers To Access Deals

Groupon has improved its website design and has integrated search with its mobile apps, thus making it convenient for subscribers to search for deals and explore its marketplace. This is well aligned with its core strategy of focusing on 'pull' rather than 'push,' where the latter refers to marketing deals through emails. Given that a big chunk of customers has shifted to mobile for online purchases, it is inevitable for the company to continue re-inventing itself on this platform. The results have been encouraging as more than 50% of Groupon transactions are now happening over mobile platform that primarily includes smartphones and tablets. The company mentioned in one of its press releases that more than 55% of transactions in North America were completed on mobile devices during the holiday weekend that spanned four days. During this period, the billings jumped 30% over the comparable period in 2012.

Groupon's business in North America saw growth of over 35% in the first nine months of 2013. We expect fourth quarter results to reinforce our belief that the business will continue to improve in the region in the near term. In the long term, Groupon will need to revive its international business and consolidate its position in newly acquired and launched businesses including hotel bookings, ticket sales, coupons and physical goods. This can add meaningful value to its stock. For instance, the online coupon market in North America stands at $4 billion annually, and the total coupon market is somewhere around $28 billion, indicating that in-store coupons still account for the majority of the industry's revenues. The company can tap this opportunity and potentially add 15% to its value if it is able to grab even 10% share of the online coupons market. This will imply incremental revenues of close to $400-$500 million over the next few years.

Disclosure: No positions

Source: Groupon Earnings Preview: To Benefit From Online Shopping Trend