Groupon, Inc. Earnings: Is Its Turnaround Doomed?

On Tuesday, Groupon (GRPN +5.11%) will release its quarterly report, and investors haven't been pleased with the perceived lack of progress they've seen from the company that pioneered the daily deals space. Yet as Groupon has evolved toward selling goods directly has some analysts thinking that the company is going up against Amazon.com (AMZN +0.53%), Costco Wholesale (COST 2.05%), and other major players in the retail market. As it tries to take the next step toward sustainable growth, will Groupon's major realignment of its strategic vision pan out?

Groupon made a name for itself by offering coupons that customers could use to get deals from local businesses. Yet while the idea was to have businesses flocking to Groupon in order to build up their customer base, the experience for those businesses wasn't as favorable as they had hoped, and competition from Amazon's Living Social and other players in the daily deals space sent Groupon stock plunging.

In response, Groupon has emphasized direct sales of goods, with a recent service targeting the same customers that Costco and Amazon aim to serve. Let's take an early look at what's been happening with Groupon over the past quarter and what we're likely to see in its report.

Source: Groupon.

Stats on Groupon

Source: Yahoo! Finance.

Can Groupon earnings start growing again?
In recent months, analysts have had their initial expectations on Groupon earnings crushed. They've reversed initial calls for a $0.06-per-share profit, and they've slashed their full-year 2014 projections by more than half. The stock has followed suit downward, with share prices falling by more than a third since late January.

Groupon's fourth-quarter earnings report was responsible for most of the decline in Groupon's stock price. The company actually posted what appeared to be strong numbers, with sales soaring 20% and profits doubling what investors had expected to see. Yet weak earnings guidance for the first quarter sent shareholders into a panic, even though some of the hit to Groupon's earnings will come from acquisitions that should help boost the bottom line in the long run. Moreover, Groupon's revenue guidance for the first quarter was actually greater than expected, making the share-price drop seem like an overreaction.

Source: Groupon.

The big challenge that Groupon faces is trying to recast itself against much larger competitors. With Groupon looking to have customers proactively visit its website rather than having to persuade them by sending deals via email, the company hopes to tap into a much larger and more easily defensible market. But Amazon, Costco, and other big retail players already represent formidable rivals in that larger market, and Groupon has to find a way to use its prowess in persuasion to convert its customers to its longer-term vision.

Groupon has also made strong forays against Amazon and Costco with its Basics service, which caters to customers looking to buy necessities in bulk. Groupon Basics doesn't charge a subscription fee to get free shipping, trying to distinguish itself from Costco and its membership fee as well as the recently raised price for Amazon's Prime fast-shipping service. Temporary promotions like a 5% Groupon Bucks rebate for orders could make Groupon earnings suffer in the short term, but if they draw loyal customers, they'll pay for themselves in the long run. Moreover, acquisitions to get Groupon into the South Korean market could help diversify its business and give Groupon a more worldwide scope.

In the Groupon earnings report, watch to see how the various elements of the company's strategy are faring. If it can find success in one of the many directions it's pursuing, then Groupon could well make a viable turnaround candidate. If Groupon keeps struggling, though, then its efforts to become relevant again in the e-commerce world could be doomed to failure in the long run.

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