After a Relatively Mellow Quarter, Will Groupon Earnings Surprise?

Over the past three months, Groupon has stayed relatively out of the limelight.

Since reporting first-quarter earnings in May, no board members have stepped down; it hasn’t restated any of its financials, and it even promoted one of its new executive hires, Kal Raman, to an even loftier title.

All of those are good things for the Chicago-based deals company, which for a while appeared to not get anything right. Now, if it can manage to report results that are in line with second-quarter expectations tomorrow, for the second quarter in a row, it might just have a chance to do something about its stock price.

And based on fairly low expectations, just meeting — not exceeding — estimates may be enough to make a big splash.

In fact, investors may already be getting their hopes up.

On Friday, Groupon’s shares saw a small gain, jumping 79 cents, or nearly 12 percent, to trade at $7.44 a share. That’s in the right direction, but it is still down 70 percent since its public offering in October.

In a note to investors, Citigroup’s Mark Mahaney says he’s mixed on the company’s prospects. On one hand, he conducted a survey with 150 local businesses and 1,200 consumers, and discovered that Groupon is gaining market share. On the other hand, Mahaney worried that revenue growth has slowed. In the second quarter, he’s expecting sales to grow by 49 percent year over year compared to the first quarter, in which revenue doubled over last year.

In general, the Wall Street consensus calls for Groupon to do slightly better than the first quarter and report a profit of three cents a share, excluding some non-cash items, on revenue of $578 million. Last quarter, the company reported a two-cent profit per share on revenue of $559.3 million.

Internally, Groupon is also projecting slightly better revenue than the first quarter. It said revenue should fall between $550 million and $590 million, representing year-over-year growth of 40 to 50 percent. Income from operations is expected to fall between $25 million and $45 million, compared to a loss of $101 million in the second quarter of 2011.

Sterne Agee analyst Arvind Bhatia was less optimistic than Citi’s Mahaney, and on Wednesday, he lowered its rating on Groupon to “neutral” from “buy,” based on suspicions that it will report second-quarter revenue and earnings at the lower end of its guidance. Bhatia also worries that Groupon is losing ground to LivingSocial, its next-closest competitor, and would be affected by the macroeconomic climate in Europe. “Given the recent decline in the share price, we are clearly late in the downgrade,” Bhatia wrote. “However, we see risk to forward estimates and believe the upside in the stock may be limited until Street estimates are adjusted downwards.”

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