Groupon Inc. announced it will implement a new major “turnaround plan” that will benefit the company going forward.
Groupon has undervalued assets and a positive potential that are worth taking a look at as it looks to reduce its cost structure. Groupon is trading at a very low multiple of adjusted EBITDA and reasonably close to book value. On an adjusted EBITDA basis, Groupon is still quite profitable and would make an attractive target for a private equity buyout.
Going forward Groupon forecasts $100 million in annual free cash flow in 2023, and a 15-20% Adjusted EBITDA margin in full year 2023.
With inflation coming in at 9.1% and recession fears, consumers will be looking for cost saving purchases. As the king of daily deals, consumers will look for deals and deep discounts on merchandise and services which Groupon has to offer. Groupon has been able to maintain its entire active customer base in North America at about 15 million, largely due to local consumer growth. The number of completed transactions in North America increased by 1% annually and by 8% over the previous quarter, showing that local customers are making purchases more frequently.
The new plan, according to the Chicago-based e-commerce site (Nasdaq: GRPN), aims to “reduce our cost structure and fundamentally improve our marketplace experience to sustain long-term development.” CEO Kedar Deshpande said in a statement. “Our overall business performance is not at the levels we anticipated, and we are taking decisive actions to improve our trajectory.”
Groupon is reducing its North America sales teams to focus on “self-service merchant acquisition capabilities.” It is also re-organizing the company to focus “only on mission-critical activities and leaning on more external support.” “In addition, we are proposing to reduce cloud infrastructure and support functions as we wrap up cloud migrations.” Groupon is also closing its Australia Goods business, more than a decade after launching there in the first place. Groupon said that it will “rationalize” its real estate footprint to be more in line with hybrid work.
Even though the layoffs are significant, they are not as severe as the staff reductions Groupon undertook in 2020. When the COVID-19 outbreak hit in April of that year, Groupon announced it would let 2,800 employees. After the reorganization, Groupon gradually reduced its goods category and switched to a third-party marketplace model where merchants were in charge of fulfillment and refunds.
Groupon will reveal its Q2 2022 financial results today. Only 21.1 million clients made one or more purchases within the previous year, resulting in revenue of $153.2 million in the second quarter of 2022, a 42% decrease from the same period the previous year. The business cited a “decrease in engagement” on the platform and the conversion of its goods business to a marketplace model as causes. (NASDAQ:GRPN): Q2 Non-GAAP EPS of -$0.34 beats by $0.10.
Groupon will be making a turnaround plans mentioned in its latest earnings call report.
- Reduce Cost Structure Differentiate Inventory to Drive Growth
- Incorporate operational excellence approach and challenge base-level assumptions
- Streamline our technology platform and overall operating processes
- Right-size our cost structure to ensure the right mix of variable and fixed costs.
- Fix Core Business
- Improve inventory density across markets
- Create a better customer experience
- Increase customer trust
- Grow top line by expanding our inventory through differentiation
- Create curated inventory collections that combine Local inventory in new, unique ways
- Launch a premium beauty and wellness marketplace experience to better serve high-intent customers
Streamlining our Cost Structure: Over the last three months, we have been challenging our current processes and automating how we work. Both with an eye toward taking costs out of the business and improving productivity. As a result, we have begun executing a multi-phase cost savings plan that we anticipate will reduce our current cost structure by approximately $150 million annually in phase 1. We expect to incur between $10 million and $20 million in restructuring costs in connection with these actions. We also have a goal to identify an additional $50 million of savings and related cost actions by the end of 2023. Savings in phase 1will come primarily from the following areas:
Right sizing our tech organization to align with our current and future business needs.
In phase 1, we intend to reduce our tech costs by approximately $60 million or nearly 30% of our annual spend.
Rationalizing our real estate footprint across markets to align with the size of the current business and a hybrid work model.
Leveraging self-service tools and technology to reduce our North America sales force.
Additional 1st quarter results.
Q1 Global Local Billings – NA and International Local Billings at 50% and 48% of 2019 levels, respectively, as Local performance was significantly impacted by the Omicron variant in January and February and did not rebound as expected in March.
Grew our high value, active Local customer base in International, improving the composition of our customer base Continued to control fixed costs to ensure that we have the financial flexibility we need to navigate the recovery and invest in future growth opportunities Liquidity position remains solid; Ended first quarter with a cash balance of $403 million, which includes the $100 million drawn on the revolver.
The future looks bright for Groupon as they look forward to Q2. Q2 Outlook:
- Revenue expected to be $155 million to $165 million
- Adjusted EBITDA* expected to be $0 million to $10 million
FY Outlook:
- Revenue expected to be $670 million to $700 million
- Adjusted EBITDA* expected to be $60 million to $80 million
Local customer growth has allowed Groupon to maintain its total number of active customers in North America at about 15 million. The number of completed transactions in North America increased by 1% annually and by 8% over the previous quarter, showing that local customers are making purchases more frequently.
Damien Schmitz, Interim CFO of Groupon said, “We have made significant progress streamlining our tech platform and leaning into automation throughout our organization and, as a result, we believe we can take $150 million in annual costs out of our business by the end of 2023.” “We’ll also be looking at other ways to reduce our costs and believe we can identify an additional $50 million in savings by the end of 2023. With a cost structure that is better aligned with the size of our current business and a disciplined operating philosophy, we believe we can generate meaningful and sustainable cash flow and create value for all of our stakeholders.”
Groupon’s stake in mobile payments company SumUp, could be a massive windfall for the company perhaps exceeding Groupon’s current market value.
This is the reason why Prescience Point Capital Management predicts that Groupon share value should be in the $70-$100 range, after Groupon confirmed its stake in SumUpon, on a bullish trend. This is an estimation and not financial advice.
Groupon’s public disclosure of its stake is positive news. It could be a catalyst to drive up the share price of Groupon. Many analysts had not estimated a bullish trend for the company. Prescience Point has been emphasizing the company’s value due to its hidden asset from several weeks.
Groupon features deals: everyday deals, trending deals, featured deals, popular deals, new deals, region based deals and more in various categories including food and drink, beauty, experiences, gifts and more. Earnings and growth had seen a downward trend due to the lockdowns as a result of the pandemic. However, as everything has been opening up, the company is seeing green shoots and hopes to reach pre pandemic levels of growth; later if not sooner.
(Photo Credit:jbk_photography )
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