Groupon GRPN is scheduled to report third-quarter 2024 results on Nov. 12.

For the third quarter of 2024, Groupon expects revenues in the band of $114-$120 million, indicating a 5-10% year-over-year decline. The Zacks Consensus Estimate for revenues is pegged at $119.02 million, implying a decline of 5.89% from the year-ago reported figure.

The consensus mark for loss is pegged at 25 cents per share. The company had incurred a loss of 12 cents per share in the year-ago quarter.

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In the last reported quarter, Groupon delivered a negative earnings surprise of 100%. GRPN’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing the same in one, the average being 107.77%.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Groupon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

GRPN has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell) at present. 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Consider

Solid momentum across the local category in the North American region is expected to have been a major growth driver of the company during the quarter under review.

Increasing focus on rebuilding its performance marketing channels, reducing reliance on promotional spending and improving supply quality through sales transformation efforts is likely to have contributed well to its top-line growth in the third quarter of 2024.

Rising demand across its enterprise customers is expected to have been a tailwind for the company in the to-be-reported quarter.

Growing momentum in Groupon’s things to do vertical is expected to have aided its revenue growth in the quarter under review.

Groupon’s increasing efforts to improve deal recommendations on the back of AI are likely to have boosted its performance in the third quarter.

However, sluggishness in its goods categories and a weakening international market are expected to have been major headwinds for the company. The consensus estimate for International revenues is pegged at $29 million, suggesting a fall of 8.1% year over year.

Unexpected site stability issues related to its cloud migration project have also been heavily affecting the company’s performance.

The Zacks Consensus Estimate for Goods revenues is pinned at $4.56 million, indicating a decline of 33.5% from the year-ago reported figure.

Groupon’s business model makes it heavily dependent on daily deals, which is a major headwind. Since most of the offerings are consumer discretionary products, demand is heavily dependent on macroeconomic conditions. 

The company operates in a highly competitive market, wherein it faces significant competition from the likes of Yelp YELP, Rakuten, Travelzoo TZOO and Wowcher.

Given this, the ongoing market uncertainties, persistent inflation, looming recessionary fears, changing consumer demand and spending patterns are expected to have dampened the company’s near-term prospects in the quarter under review.

Price Performance & Valuation

Groupon has seen its stock decline 14.6% year to date, underperforming the Zacks Retail-Wholesale sector’s return of 25.3%. This pullback has some investors wondering if it is a selling opportunity for the high-growth software company ahead of third-quarter earnings results.

Year-to-Date Performance

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It is also important to consider whether the stock's current valuation accurately reflects the company's long-term growth potential and ability to navigate the competitive landscape. Groupon is trading at a premium with a forward P/E ratio of 29.26X compared with the Zacks Internet - Commerce industry’s 25.36X, reflecting a stretched valuation.

GRPN’s P/E F12M Ratio Depicts Stretched Valuation

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Investment Considerations: Balancing Risk and Reward

Groupon's upcoming third-quarter 2024 earnings are likely to reflect the company's continued struggles in an increasingly competitive local commerce landscape. Despite management's efforts to streamline operations and pivot toward higher-margin offerings, the platform's declining merchant base and waning consumer engagement raise concerns about sustainable growth. The recent cost-cutting initiatives, while necessary, may not be sufficient to offset the fundamental challenges in their business model. With local merchants increasingly adopting direct-to-consumer marketing strategies and younger consumers showing limited interest in daily deals, Groupon's path to meaningful profitability remains uncertain. The stock appears vulnerable to further downside if revenue continues its deteriorating trend.

Conclusion

Given Groupon's operational headwinds and uncertain growth trajectory, investors should exercise caution ahead of third-quarter 2024 earnings. The company's challenges in merchant retention and user acquisition suggest potential downside risks that outweigh immediate opportunities. We recommend investors remain on the sidelines until there are clear signs of sustainable revenue growth and operational efficiency improvements, making a better entry point likely to emerge in the future.

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