Groupon Lays Off Employees And Exits Certain Geographies: A Look At The Impacts On The Stock

Groupon (NASDAQ:GRPN) recently announced a bold restructuring move to lay off 1,100 employees and to exit 7 international markets. This latest move comes on the top of a series of measures that were recently taken by the management to re-invent the company amidst various challenges it faces. This past year, Groupon also divested its stake in its Korean Ticket Monster and restructured its Indian operations. In addition, it exited from markets such as Turkey and Greece. While this restructuring indicates that all is not well with the company’s business model, we think is a positive step taken by the management to reinvigorate growth within remaining geographies. The international region accounted for a large proportion of losses seen over the past few years, and hence we think these measures could boost profitability over the long-term. At the same time, we think a more nimble and more focused organization will make the company more effective in testing new business opportunities and quickly monetizing on them.

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Groupon Plans To Cut Off 1,100 Employees And Shut Operations In Certain EMEA and Asian Geographies

Recently, Groupon announced certain restructuring actions to reduce costs and enhance focus on fewer geographies — more specifically, the company decided to cut around 1,100 positions (around 10% of its workforce) across its international and customer service operations. Moreover, it decided to shut its operations in various countries including Morocco, Panama, Puerto Rico, The Philippines, Taiwan, Thailand and Uruguay. This follows its earlier move to exit from Greece and Turkey. This decision was made as the management took a more realistic view of the expected returns versus the investments required in these markets. ^[1]

These measures are expected to cost up to $35 million (in pre-tax charges), with approximately $22-24 million to be charged in the third quarter of 2015 (according to company estimates). These actions will take until September 2015 to complete. Most of the charges will relate to employee severance and compensation costs, and will be paid in cash.

Restructuring Efforts Could Help Groupon Re-Invent Itself As Its Business Model Faces Various Business Challenges

Groupon’s stock price has plummeted drastically since its IPO, owing to various challenges to its business model. These include the lack of profits, reduced hype in its deal business, and the slowdown in its overall growth. The international operations presented a big impediment to Groupon as they contributed significantly to the company’s overall losses. As a result, the company has been trying to standardize its best practices globally to improve profitability in these markets. Earlier this year, Groupon also divested its stake in its Korean operations (Ticket Monster) and Indian operations, to bolster its profitability in the international region. While the latest move sparks fears regarding the sustainability of the overall business model, we believe these measures represent a step in the right direction. In our view, Groupon must focus on its key markets for the next few years, to improve its business model and to regain its lost appeal in the marketplace. We believe a more nimble and focused organization will help the company try out new business cases and build best practices more quickly among the remaining markets.

Impact On Financials

While the recent measures will have a downward impact on top-line in the near-term, we believe these steps will help raise profitability over the longer-run. Further, in the event, the company’s recent growth strategies gain significant traction, these measures will also help the company fast-track growth across the remaining markets.

In view of these restructuring efforts, we have reduced our top-line guidance for 2015 and 2016 to $3.192 billion and $3.427 billion respectively. Simultaneously, we now project the company’s non-GAAP EPS for 2015 at $0.13.

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1. One Playbook: The next chapter at Groupon, Groupon Blog, September 22, 2015 [↩]