When it launched in 2008 as a daily deals site, Groupon (NASDAQ: GRPN) benefitted greatly from the economic downturn. Within 18 months, it achieved the billion dollar unicorn status. It even turned down a $6 billion acquisition offer by Google in 2010. Shortly after going public in November 2011, it reached a valuation of about $15 billion and a high of $31.14. However, it never hit that level again. Compared to its former self, Groupon is almost a unicorpse* with a valuation of less than $2 billion and a stock price of $3.17. As with most unicorpses, waning interest, high marketing costs, and continuing losses are its main problems.
Groupon had raised $1.14 billion before going public. At the time of going public, Groupon had argued that its enormous marketing budget, which was about 90% of its revenue, was necessary and will dwindle over time. But the problem was that its profits did not keep up pace to preserve investor interest.
Its revenue increased from $313 million in 2010 to $1.6 billion in 2011, while its marketing expenses increased from $290 million in 2010 to $768 million in 2011. As its stock tumbled, Groupon tried to rein in its marketing expenses and restore investor confidence. From 48% of revenue in 2012, it brought it down to under 10% in 2013 and 2014. However, it continued to make losses. Net loss was $95 million or $0.14 per share in 2013 and $73 million or $0.11 per share in 2014.
Groupon depends on a revenue sharing model with merchants. At the height of its popularity, it charged about 50% of revenue share on a deal. Within a year of its going public, Groupon had problems in sustaining interest in its deals as the daily deal fad passed. It then had to bring down its take rate to 35%. Its high take rate was another reason why it fell from grace. Merchants woke up to the fact that it was a big price to pay for a coupon that already encourages deep discounts.
Groupon was a little late in providing value to its merchants. Rather than focusing on serving its existing subscriber and merchant base better for a couple of years, it focused on spending less on marketing to grow internationally. As a result, its financials suffered and it even resorted to cooking up funny accounting principles.
Groupon’s Recent Financials
In its most recent third quarter, its revenue was flat over the year at $713.6 million and net loss was $27.6 million or $0.04 per share. Its number of active customers grew 4% 48.6 million, with 25.2 million of them in North America, 15.4 million in EMEA, and 8 million in Rest of World.
For the fourth quarter 2015, Groupon expects revenue of between $815 million and $865 million. Adjusted EBITDA is expected between $40 million and $60 million, and non-GAAP earnings per share between negative $0.01 and positive $0.01.
Groupon has recently announced a shuffling of its management team. COO Rich Williams will be the new CEO, the third CEO in its history. Outgoing CEO Eric Lefkofsky will once again serve as Chairman of the Board of Directors. Outgoing Chairman Ted Leonsis will be the Lead Independent Director. CTO Sri Viswanath resigned recently.
Groupon has set in motion its turnaround plan. It is now looking at reaccelerating local growth in its markets, especially in North America. It also wants to improve the gross margins and operating efficiency of its goods business and finally, the company wants to achieve stability in its international markets and reduce losses in the Rest of the World operations. It is also looking at providing value to its member merchants. It has launched merchant pages, is adding larger merchants, optimizing the mobile experience, and transitioning itself into a pull marketplace.
This year, it has cut jobs, exited from 11 countries including Greece, Turkey, Morocco and Peru. It has international operations in 36 countries now. It has partnered with other companies in India and South Korea and might follow this strategy in other markets as well.
The new CEO Williams expects to spend an additional $150 million to $200 million on marketing across all platforms, from digital to social media. This sure is not what the doctor recommended for Groupon!
This segment is a part in the series : From Unicorn to Unicorpse