How Do Groupon’s Gross Billings & Gross Profit Per Customer Vary Across Regions?

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Groupon (NASDAQ:GRPN) reported mixed earnings in the first two quarters of 2016, with revenue beating market expectations but its net loss growing to over $104 million compared to a profit of $95 million in the same period last year. Both the company’s gross billings and gross profits grew year-over-year (y-o-y) in North America and declined in international markets in the first six months of the year, owing to its strategy to focus on the North American market and move away from certain low-margin goods businesses. However, both Groupon’s gross billings per active customer and gross profit per active customer declined in the same period. Interestingly, the company’s gross profit per gross billings improved in the first two quarters. In this note, we focus on how these metrics trended over the last six quarters and their implications for Groupon. grpn-15grpn-18

Gross Billings Per Customer

In Q2 2016, the number of active customers grew by 12% y-o-y in North America while they declined by 17% in the Rest of World segment. The number of active customers currently stand at 50 million, including almost 28 million in North America. Groupon’s gross billings per average active customer declined from $31.50 in Q2 2015 and $34.90 per year in Q4 2015 to less than $30 in Q2 2016. In terms of geographical spread, this metric declined in low single-digits y-o-y in North America and by double-digits in EMEA and Rest of World.

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The impact of increased marketing efforts and order discounts was more on Groupon’s customer base than gross billings, leading to a decline in gross billings per customer in the first two quarters of the year. However, a positive trend witnessed in this period was that even though the active customer growth rate accelerated in the second quarter (in North America and globally), the decline in gross billings per customer came down from 7.7% in Q1 2016 to just over 5% at the end of the second quarter.

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Gross Profit Per Customer

Following a trend similar to gross billings per average active customer, Groupon’s gross profit per average active customer declined from $7 in Q2 2015 and $7.60 per year in Q4 2015 to $6.70 in Q2 2016. In terms of geographical spread, this metric declined in low single digits y-o-y in North America and by double-digits in EMEA and Rest of World.

The impact of increased marketing efforts helped improve Groupon’s customer base as well as gross profits in North America, leading to only a marginal decline in gross profit per customer in the first two quarters of the year. It will be interesting to see how this metric trends over the next couple of quarters considering that the seasonally weak third quarter precedes the strong holiday season towards the end of the year. We expect the company to continue with its marketing efforts in this quarter to expand its active customer base which is is likely to benefit in the form of higher gross billings, gross profit and revenue in the fourth quarter. grpn-16
Gross Profit Per Gross Billings

grpn-22Groupon’s gross profit per gross billings improved in both quarters y-o-y in North America as well as in the global market. This indicates that the company’s gross profit per gross billings has improved over the last few quarters in line with the improvement in its take rate (revenues per gross billings). This is despite the decline in Groupon’s overall gross margin (gross profit/revenues) in Q1 and Q2 2016, which of course can be attributed to the drastic improvement in take rate in the international markets in the first six months of the year. grpn-23grpn-13

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