How Did Groupon’s Take Rate Trend Over Different Geographies In 2016?

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Groupon (NASDAQ:GRPN) reported solid financial results in the last three quarters of 2016, improving shareholder sentiment regarding the chances of a turnaround in the company’s fortunes. The company’s stock had tumbled over 10% after its first quarter results missed earnings expectations in April 2016, but soared 25% after it reported better-than-expected second quarter earnings and full year guidance in July, with both revenue and adjusted profits beating market expectations.

The stock fell post-Q3 earnings in November, likely on profit booking and speculation around the material impact of Groupon’s acquisition of its competitor LivingSocial, before again jumping over 20% after its Q4 results as both revenue and adjusted profits beat market expectations. Despite the ups and downs in 2016, Groupon’s stock price is up over 13% in the last year.

The company’s gross billings and revenues grew year-over-year (y-o-y) in North America and declined in international markets, owing to its strategy to focus on the North American market and move away from certain low-margin goods businesses. However, Groupon’s revenue per gross billings, or take rate, shows a different trend over the last eight quarters.

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Despite a marginal decline in the take rate in North America in 2016, the company’s overall take rate improved 170 basis points in 2016 over the prior year, reflecting Groupon’s shift away from certain low-margin goods businesses and a slight improvement in the company’s pricing power in the international online coupon market. In this note, we discuss how the company’s take rate has trended in different geographies since last year.


North America: Gross Billings Improve But Take Rate Declines

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In Q1 2016, Groupon’s gross billings grew by about 5% y-o-y in North America, while they declined by 5% overall in the global market. A similar trend was observed in the other three quarters of 2016 as well, as gross billings grew by 6-8% y-o-y in North America while they declined by 0-2.5% overall in the global market. Gross billings refer to the total amount of transactions taking place through Groupon, and the company’s revenue from such transactions depends on its take rate on these deals.

grpn-47 Even as Groupon’s gross billings and revenues increased in North America and declined in international markets in 2016, its revenue per gross billings witnessed the reverse trend. The company’s revenue per gross billings marginally declined y-o-y to 54.7% in North America in 2016 and increased about 380 basis points to 52.1% in the EMEA region in the same period. Owing to the take rate improvement in international markets, the company’s overall take rate improved by 170 basis points y-o-y in 2016 to about 52% by the end of December 2016. grpn-48This is indeed a positive trend for Groupon, and it shows that the company is successfully moving away from certain low-margin businesses in international markets. Its growing marketing efforts are not only helping improve gross sales but also helping it increase its pricing power in the coupon-driven online shopping and services market.

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