Groupon has high hopes for 1st profit report

Top deals site acts as a bellwether for rest

Groupon offers a glimpse into the world of the daily- deals business when it reports financial results, which were scheduled for Wednesday.

Groupon — an online pioneer in offering discounts to consumers via e- mail or app each day for everything from spa treatments to museum visits to restaurants — is expected to report a fourth- quarter profit of $ 21.5 million on $ 475 million in sales. Analysts are looking for earnings per share of 3 cents.

Wall Street will be closely watching subscriber acquisition costs and related marketing expenses and how much those eat into profit. Groupon’s biggest expense is the cost of advertising and getting out in front of new customers.

Subscriber acquisition costs “should come down. I would be surprised if they didn’t,” says Mark Mahaney, Internet analyst at Citigroup Investment Research.

Another area that will be scrutinized: whether merchants and customers are returning for deal offers.

“It’s questionable for many merchants if this is something that is worth their while,” says IDC analyst Karsten Weide.

Meanwhile, competition among daily- deals businesses is brutal. Companies are shuttering, starting and being sold with regularity. Groupon is the largest deals site by revenue but is closely followed by Amazon- backed rival Livingsocial.

On Monday, Groupon acquired Adku, an electronic commerce data start- up, for an undisclosed sum. The Silicon Valley- based company was formed by a group of former Google employees. Groupon in the past year has steadily snapped up smaller businesses to build its presence worldwide.

Groupon shares in November saw a 31% pop in first- day trading from a $ 20 opening share price but weeks later languished below their offering price. Ahead of its earnings report, shares surged nearly 3% Tuesday to $ 24.19.

Shares of Groupon were also buoyed by the wave of excitement for Facebook’s IPO filing last week. On Thursday, shares climbed as much as 7%, while those of Zynga, Pandora and Linkedin also got a lift.

Linkedin posts its financial results on Thursday.