What Groupon Needs To Do To Impress Investors

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 |  About: Groupon, Inc. (GRPN)
by: Leigh Drogen

Groupon Inc. (NASDAQ:GRPN) is set to report FQ4 2013 earnings after the market closes on Thursday, February 20th. Groupon is a multinational online deals website which sells discounted vouchers for local products and services. Groupon stock got off to a horrible start after its 2011 IPO, dropping from $28 to lows in the $2 range. However, things were better in 2013 as shares doubled from $5 to $10. This quarter Wall Street is expecting Groupon to report about 12.5% year-over-year growth in revenue. Here's what investors expect from Groupon Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see All Estimates for Groupon)

The current Wall Street consensus expectation is for GRPN to report 2c EPS and $718.67M revenue while the current Estimize.com consensus from 27 Buy Side and Independent contributing analysts is 2c EPS and $719.12M revenue. This quarter the buy-side as represented by the Estimize.com community is expecting GRPN to report in-line with Wall Street on EPS and exceed by a small margin on revenue.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a smaller differential compared to other quarters.

The distribution of estimates published by analysts on the Estimize.com platform range from -1c to 5c EPS and $699.67M to $727.67M in revenues. This quarter we're seeing a smaller distribution of estimates for GRPN.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.

This quarter the Wall Street EPS consensus fell from 6c to 2c, while the Estimize consensus increased from -1c to 2c. Over the same period of time, Wall Street lowered its revenue forecast from $721.32M to $718.67M while the Estimize consensus increased from $717.14 to $719.12M. Timeliness is correlated with accuracy and rising analyst expectation at the end of the quarter are often a bullish indicator.

The analyst with the highest estimate confidence rating this quarter is BradHewitt91 who projects 2c EPS and $717.0M in revenue. In the Winter 2014 season, BradHewitt91 is rated as the 20th best analyst and is ranked 14th overall among over 3,850 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, BradHewitt91 is expecting Groupon to report in-line with EPS estimates but miss by a small margin on sales.

Despite Groupon stock getting off to a dismal start after its 2011 IPO, things were better in 2013. So far in 2014 Groupon stock is down, but a better than expected earnings report demonstrating strong revenue growth could help get things back on track for Groupon. This quarter the target to beat as set by the Estimize.com community is $719.12M in sales.

Disclosure: No positions.