Shares of Groupon Inc. (NASDAQ: GRPN) fell more than 3.5% yesterday, the day before the company is scheduled to report third quarter results. Today’s earnings report will mark the fourth full-quarter of Groupon’s existence as a publicly traded company.

The first year has not been kind to the daily deals pioneer. Shares have fallen about 85% since the company’s IPO at $20 a share. Groupon posted its 52-week low last Friday, following the announcement of an SEC inquiry related to the company’s restatement of its fourth-quarter 2011 results. The government wants more detail from Groupon related to the company’s estimates of the level of refunds it will have to make to customers under the “Groupon Promise” program.

In a response to the SEC, Groupon said, “The maximum amount of future or potential refunds, or total unredeemed vouchers, is not a metric that the company currently evaluates.” That is probably not going to appease the SEC.

For the third quarter, Groupon is expected to post earnings per share of $0.03 on revenues of $590.12 million. The EPS estimate has fallen from $0.05 in the past 90 days. In the second quarter the company posted EPS of $0.08 on revenues of $568.3 million, topping the consensus EPS estimate but missing on revenues by about $5 million.

Strong top-line growth has not been matched by profit growth, and the likelihood is that costs keep climbing as the company tries to beat back competitors. One analyst cited at MarketWatch expects gross billings to rise by 12% sequentially in the third quarter, to $1.3 billion. If that’s the case, then the consensus top-line estimate is probably too high. The more Groupon has to pay to maintain its connections with its customers and beat back competitors, the lower profits will be. And if the SEC has its way, Groupon is going to have to shine a light on how it estimates future refunds and that won’t be very pretty either.

Shares are up today as we await the company’s earnings results after markets close today. Currently the stock trades up about 2.7% at $3.86 in a 52-week range of $3.68 to $26.90.

There could also be some short covering today. As of October 15th, some 32 million (13%) of Groupon’s shares were held short.

Paul Ausick

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