Groupon, Inc. Price & Performance (GRPN)

Got it. So it's something where, yeah, those top five metros were targeted first and going and you're still working on figuring out what the optimist or how to optimize it best, but it's something that you haven't yet rolled out to all different metros.

We are still learning the right way how to do it. It's a combination of market management where we [indiscernible] understanding the market dynamics, the specific parameters and behavior, of each location and then there is also the category dimension to it where we are digging much deeper and understanding with our category needs because Groupon is not one place fits all. But we are developing a strategy for each key vertical which we have on the platform. So it's a combination category in one dimension and NGO as a second. And once we will feel comfortable though that this is scale work process, which we can have everywhere, we will be rolling that out to two more locations.

Got it. And then so North American active customers that grew sequentially after I mean, I have my data back going back to 2018 and there was all sequential declines on active customers in North America. So that was really great to see. And so kind of two questions on that is, one, does your guide bake in any continued customer growth And could you maybe just touch on what you felt drove that? I know you talked about better conversion, if If you could just share any more details on that, that would be appreciated.

Yeah. So I will go back again to platform stability because it was a big topic for us last year and really in Q4 when all these PCs fit fit together, We saw performance marketing channels to be really stepping up and improving and they are really driving the acquisition part. Which in my opinion, we still have a potential to do more. We have a plan, we improved and strengthened the team in marketing, the and we know that we can grow further. But at the same time, we are shifting our focus right now on customer retention where we are bringing some especially food tendering deals, which we call Wow Deals, which can help us to improve the frequency because I believe we cracked the [indiscernible] and now focus is customer retention, second, third part transaction.

Got it. And then just kind of confirm so does a guide does your guide bake in like any customer growth or is that not really a function?

Of it? Our plan expects that we will be doing better and better customer acquisition. We don't expect that it will be like several times better obviously, but we will be improving and we expect in the plan slight improvement in retention Got it. Appreciate it. I'll return back to the queue. Thanks guys and congrats on a good quarter. Thank you. Our next question comes from Eric Sheridan. From Goldman Sachs.

Eric, you can now unmute your line.

Thanks so much for taking the questions. Maybe two if I could. Just coming back to the point on purchase frequency. Can you go a little bit deeper and what you see as the critical investments to drive more purchase frequency and what you might be seeing in terms of different behavior in terms of purchase frequency when you line it on top of vertical based behavior on the platform to what resonates and what might be some of the key unlocks to drive [indiscernible] are using Groupon as a platform to go to market? Can you maybe give a few examples of how enterprises as a strategy continues to evolve and what that might do to broaden out supply on the platform over the longer term? Thanks so much.

Okay. Thank you, Erik, for the question. So I will start with verticals. Yes, we see different behavior in different verticals on the platform. There are verticals like online retail, where customers are not buying really the local services and experience [indiscernible] where it's quite often one open. It will depend on our marketing performance and on our marketing systems to be typically in Google or Facebook when they are looking for [indiscernible] if you are buying some stuff which is kind of commodity and it's still in Groupon, then it's a very different behavior. But when we moved to categories which are more local, then that behavior is different. And the we see a huge potential to increase purchase frequency [indiscernible] VR and we started already late late q four, is doing is we are adding something which we call Wow Deals, which are typically food and drinks, really great offer with top brands. On the market. And our main intention is to offer those ASAP after the first purchase. In the past, we quite often focus after the purchase just to deliver the voucher, then do nothing for next few days and then come back again to customer Right now, we are improving and shortening that period of time when we communicate with customer.

And based on our tests, we see very positive reactions from customers, so we believe that these, like all wow deals will be one of important elements to to drive purchase frequency higher. In terms of enterprise partners, like you see overall market that many companies are really looking for consumer demand and some of them are struggling Groupon is a great platform for them. You are advertising on Google, on Facebook, you are typically paying for clicks, and yes, you are optimizing for performance. But Groupon is really the only I would say, big platform where you can make a campaign to show pure performance based. So they make a lot of sense And then if we dig into categories when typically these these businesses have fixed cost or they're selling memberships, and suddenly the economics of these deals work great for them and Groupon is really a top platform for them, which they really want to scale. And I would say most limitations which are there are still on the technical integration part, which is our focus to be more open to more accessible to these enterprises, which may have they have their own issues with their own quite often legacy platforms, and we need to be able to connect them.

But in general, when I'm meeting with with these partners, on every meeting, I have a feeling that we can do much, much bigger business with them versus what we do right now.

All right. We'll now pose written questions to management. That came in through our Investor Relations press line. Our first written question is for Dushan. Can you share what the December Christmas period looked like from a growth perspective? North America local was running in the low single digits positive during Black Friday Cyber Monday and was likely down negative high single digits to negative low double digits in October based on your commentary at that time around guidance framing. Though, would this imply the business was running up positive double digits in December Christmas based on reported North American local growth of plus 8% year over year.

So December was very good. However, what we have to take into account is that year over year compares impacted by timing of Black Friday and Cyber Monday. So it's not really apples to apples. But even said that on a like for like basis comparing holiday twenty twenty four to holiday twenty twenty three we believe we had a very successful year in NALOCO. Including some great numbers in the lead up to Christmas and period between Christmas and New Year. And what's important in the past, we have mentioned that we have observed the our platform tends to perform better during the key buying seasons and Q4 really no exception to that. For our Q1 outlook, as mentioned in earnings commentary, we lost some of the excitement from the Q4 season as we started Q1 but we have been pleased with the momentum in North America local and see continued growth in billings. While we commented that our first quarter outlook assumes better performance in local versus Q4, At this time, we don't believe it will be double digit growth in billings.

Great. Have a few more questions from our analysts on the call, it looks like. Bobby, you had your hand up first.

Hey, thanks, So bringing higher quality supply onto the platform is a strategy you've talked about a lot since Dushyant took over and specifically on this call. So I was just on really how you are getting these higher quality merchants onto the Groupon platform. Maybe some examples of wins, but what is the typically the selling point that wins these guys over? Is it Is it the improved tracking you can provide merchants on the deals progress? Or is something different?

Well, actually, it starts with us and with our sales force and the consultant which And let me give you one example. When we started and we were reviewing what we call deal books internally, which is like let's say, a document which describes what deals we should be getting the platform For massage, most preferred massage type of deal will slide with 50% plus discount and $40 per hour. But when we are doing the analytics, we see that really the massages which we sell most are actually something completely else. They are quite often above a hundred dollars. It's a couple massage with nice merchants. So have to convince ourselves sales force first that we don't go by the deepest discount. We go for something which is a value for customers because Groupon is always a place where we will not be selling the most expensive stuff We will be selling high quality stuff, which will be a good deal for customer. So now we don't go to the lowest quality merchants. We go to good quality, and high quality merchants, we don't go where with like $40 per hour massage but we go there with massage which makes them more money which makes also more money to Groupon and actually customer love it love it more.

And it's actually combined with the gifting strategy, which works very well. We other types of deals which you can buy get us a gift because you see the quality immediately.

So So this is the main strategy, really starting on our side, deciding the good deals which which we need. Identify right merchants and negotiate a deal which makes sense for merchant and [indiscernible] A lot of sense. And then just the last one for me, So obviously, you guys give a lot of value to the consumers, like you're just like you just mentioned. There's obviously some pressure on the consumers here with more macro related stuff. So I was just curious if you could just maybe talk about high level like would you guys actually see, like, a counter, you know, kind of countercyclical tailwinds as the consumer sees more pressure or I should say, would you expect that? I mean, that's kind of historically I think, has been the case, but is that something that you think will continue to be the case going forward if we start to see pressure on the consumer?

Yigal, do you want to take this one?

Yes. Thank you, Bobbie. I think this will be head of events and tail of events. Definitely, on we will be the business which will be interesting for merchants in terms of having if they will have empty capacity, they will be looking for the options how they can bring the customers in. And I think the Groupon is a great place for that. For sure, there will be also tailwinds because the people might have a bit deeper pockets, so it might have impacted the categories like travel or goods. Or high value. But I believe the customers will be looking for the value and I think that it's Groupon is a good place for that.

Really appreciate the color guys. I'll turn back to the queue. Thank you.

Thanks, Bobby. We'll move back to Sean McGowan from Roth Capital. Sean, please unmute your line.

Yes. Thank you. Two I was wondering, Dushan, if you could give any metrics around the improvement in gifting. There seems to have been a a big priority of the company and you've set some goals of improving that as a percentage of total business. So can you give us some sense of that progress?

We didn't disclose any specific numbers yet, but I can share some like top level view. I mentioned that gifting is gaining importance and what I can share with you is that during the peak holiday season, the gifting was in double digits share of our orders, very low double digits, obviously. But it's significant improvement versus last year. We see very strong trend and strong growth there. Especially in some categories, because some categories are simply more suitable for gifting than others. It's all interconnected. We it will take us time to get an I believe in the past, we were mentioning that the benchmark which we had was 50% for the holiday season. We are very far from that. But for that, we need to improve inventory, I was answering the previous question with like more accurate, let's say. Massage deals. We need to have enough deals like this because these are the deals which are bought as gifts more often. I would also stress out what mentioned several times that Groupon is performing very well as a platform during season and there are many seasonal occasions where gifting will be helping us with people can be self gifting, gifting to others, So this is all big project which will take us time, but, like, I see that we are on the very very good path in delivering it.

It.

Thank you.

Thank you, John. We'll move back to some written questions. Another one for you, Dushan. Can you talk about the drivers of growth within international, excluding Italy? Which geographies are you seeing strength in addition to Spain running up to twenty nineteen levels?

I was actually mentioning in previous answer that we have some cities in Spain, which are already near 2,019 levels, which is extremely encouraging. We see very positive signals and trends in all our big countries, which is Spain, UK, France, and Germany, these four make approximately 80% of our international local In Spain, as I mentioned, we started two years ago by strengthening the sales force by focusing more on market management, on really deciding what's what's needed on the platform. We are following same steps in our countries. It starts with strong leadership, So, we are strengthening and we did strengthen teams in every single country, which I mentioned. We are holistically looking on performance of the country, what deals we should be bringing, but then also rebuilding the cooperation marketing to make sure that we are promoting [indiscernible] And although we did not migrate both countries to new platform yet, just by optimizing supply and marketing, we were able to get them to Groupon we very optimistic going forward there.

Another written question for you, Dushyant. There appears to be a lot of employee turnover, assuming this is just potentially to make sure the go to market is top notch. How are you keeping your top salespeople around? And how variable is their comp structure? Is sales productivity improving?

So I have very good feeling about strengthening our management team in sales. In general. I think we are on very, very good path there. And yes, in sales, there is and there will be always much higher turnover We pretty much went back to original day how Grupo but also many other companies I I was working with in the past. We're working. We are hiring a lot of junior people Quite often, it's their first job or second job. After after college. They go through training and some of them realize this is not for them, this type of job. Some of them fell in love and become great salespeople. So this is simply the way how we are working and that will be high. Turnover, especially during the initial stage of hiring. And in terms of remuneration, we are highly performance motivated company and structure, I would say, and our top sales people are [indiscernible] System.

A written question for you, Yajee. What do you believe, if any, will be the impact on Groupon of recent U. S. Tariffs?

Yes. As we understand the current discussions about tariff policies, they are targeted mostly to the goods or consumer products. If I look on Groupon business, most of our business is local experience, meaning local merchants, local products and impact from tribes is minimum. Mostly where we will see some impact to our business will be goods, But let's be clear, this line of business is of course less than 5% of our revenues in 2024. And we do not expect the growth in 2025. So it will be smaller and smaller part of our marketplace. And therefore, I would say that impact or potential impact of tariffs implications will be minimal and would not be material to our 2025 outlook.

Thank you, Yijit.

We have one more question, it looks like from Sean McGowan Don, go ahead and unmute your line.

Thanks. I want to circle back on some I think in your prepared remarks, you talked about user engagement, maybe something that could see some improvement and yet you got the 8% increase in in North American local. So can you give us a little bit more color on that relationship between user engagement and that growth So we have in general better conversion on the platform, which is helping us We are also in our comments, we mentioned that our marketing plot is really working very well. The acquisition marketing platform. So this is primary source of of this growth. So we are able to approach customers in NA I would say international, it's a very similar story. We are able to present them appealing offering. We see increased conversion in the sales process, which is something we were expecting when we were talking about the new platform we are releasing, but also just coming together with higher quality supply. It's driving also higher AOV, not only gifting, but in general higher quality deals. Now what needs to be coming and what's our focus is retention, meaning we need to increase the number of transactions our customers are doing with Grupo.

Okay. I think we've talked in the past that each incremental or each turn of user engagement adds tremendously to incremental EBITDA like $100,000,000 for each turn or something like that. Is that still your expectation? And when do you think we start to inflect to that? What do you expect over the next couple of years? So I've I'm not able to be exactly specific about the numbers, but like just to give you an idea, when we are talking internally about strategy 02/2025, the first line, the North Star for whole company is customer and merchant retention. So as you see, it's becoming the priority number one for for Groupon in general. We are already experimenting with plenty of not only deals, but different approaches, how to how to tackle it, and I'm optimistic that we will be able to improve it but we are not ready yet to share specific numbers. I expect improvements this year and then it will gradually continue in next years.

Thank you.

Thank you, Sean. We have one more written question for Yighi. Yigiy, can you comment on the trends underpinning the guide?

Yes, for sure. So the parents on that is we left Q4 in definitely better positions than we entered Q4 after a very turmoil Q3. So we are continuing in Q1. We expect in Q1 some still negative slightly negative trend in billings. This is what we put there. We continue and we still see the lower take rates. It means year over year? It means that our revenues impact will be more negative versus trends of the billings. But we believe we will be as we were last year positive in adjusted EBITDA. About the cash flow, this is things which we have to take into account. Our business is seasonal in terms of we have strong holiday season in Q4. Which is redempted by our customers. In Q1. Which resulted naturally in negative cash flow in Q1. So this is about Q1 For full year, we actually expect that we will be growing billings. We expect there will be growing revenues. We will be adjusted EBITDA and free cash flow definitely better than we were in 2024. What is probably good to mention here And we expect some impact roughly 100 basis points. It's maybe good to mention that last year we left Italy beginning of Q2 and I mean not full local market.

So this is all the things which we should probably mention. We also believe and I think it was mentioned here already today, that we continue and we will continue to invest in our marketing and in our sales force We expect that our SG and A will be flattish year over year. It might be a little bit different each quarter, but we see some pockets where we can still have savings in our SG and A. On the other hand, we are hiring especially to our sales force And this is a place where we would like to take our savings, which we will deliver during this 25 during the year 2025 and bringing back to the business and definitely, it's thanks in our capacities in Salesforce. About About marketing, we expect and it was also said here, we expect to be stable spending roughly 30%, 35% of our gross profit on marketing. Assuming and being conditioned that we are positive in ROI. If we will be positive ROI, we would be able to spend even more which will certainly will impact our auto point positively.

Thank you, Yajit.

There are no other questions. This concludes our call for today. Thank you for everyone for joining. For additional information, please go to investor.groupon.com.