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Groupon (NASDAQ:GRPN) reports fiscal Q3 results on November 8th.

The Street expects:

  • Revenue: $591 million
  • EPS: $0.04 per share
  • Q4 revenue guidance: $633 million

In Q2, Groupon reported a weaker than expected quarter in which billing, revenue and active customers all came in below consensus. The only bright spots were take rate and CSOI that came in slightly ahead of consensus. The weakness in Q2 was due to a combination of changing consumer behavior, European weakness and FX headwind. Management guided this upcoming quarter below consensus.

In the near-term, I believe Groupon will continue to face increasing headwind given its recent staff turnover, increasing competition and soft industry sales.

In August, Groupon lost Lee Brown and Jayna Cooke, two key sales personnel, amid increasing decline of its sales force. I note that Groupon's sales force shrank to 5,587 people in Q2 from 5,735 in Q1. The 75% stock price decline since the company's IPO is adding additional challenges to staff retention. The declining stock option value is making the company increasingly less appealing to the employees who are becoming unconfident about the company's future prospect.

Aside from the low barriers to entry of the group-buying industry, Groupon is also facing competitive pressure from well-funded internet peers, namely Amazon.com (NASDAQ:AMZN), which owns 29% of LivingSocial, Groupon's largest direct competitor. Amazon's daily deal business, AmazonLocal, recently began to offer daily deals by YP.com, which may disrupt Groupon's competitive positioning in the daily deals space.

Finally, the industry sales trend is unlikely to pick up in the near-term given the continued weak macro environment and softness in Europe.

Despite near-term uncertainties, investors should also note the recent steps that the company took to strengthen its long-term position:

  1. Groupon Payment: Groupon recently launched Groupon Payment, a service built into the Groupon Merchant app for iOS devices, to enter the payment business. This service includes features such as bill entry, tips, taxes, refunds, receipts emails and analytical tools for revenue trends and ROIs. Despite in its initial rollout stage, Groupon Payment could be attractive in the long term as it provides merchants with a low-cost POS and users with an efficient way of redeeming coupons.
  2. Savored acquisition: Groupon recently acquired NY-based startup Savored, which is an inventory management system for restaurants that allows customers to book reservations at non-peak hours. I believe Savored will allow Groupon to build a scale and an integrated platform that is hard to replicate. In the long-term, an integrated platform is likely to survive in the competitive group-buy industry that features thousands of fragmented and standalone platforms.
Source: Groupon Earnings Preview: Near-Term Softness Keeps Me On The Sidelines