Groupon (NASDAQ:GRPN) reported its Q4 earnings on February 12. The company’s struggles in transitioning its business model from a coupon company to a full-fledged marketplace appear to have continued, with a decline in units sold. Despite reporting a higher than expected revenue number, the company’s earnings came in below consensus estimates. We note lower traffic and a focus on gross margins are likely to put some pressure on the company’s business.
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Overview Of Q4 Earnings
In North America, Groupon’s Local gross profit declined to $180 million (-9% y-o-y) in the quarter due to lower traffic, while Goods gross profit increased to $56 million (+2% y-o-y) and Travel gross profit declined to $12 million (-13% y-o-y). Active customers at the end of quarter declined to 30.6 million (-6% y-o-y), while the number of units sold declined 13% y-o-y.
In the International business, gross profit declined to $119 million (-3% y-o-y) due to FX headwinds. On a currency neutral basis, gross profit was up 1% y-o-y. Meanwhile, active customers at the end of quarter stood at 17.6 million (+5% y-o-y) and the number of units sold grew 3% y-o-y.
Groupon’s management’s guidance of flat EBITDA growth to $270 million further points to potential headwinds until the company’s transition is complete. While the company also witnessed a marginal decline (-2% y-o-y) in its marketing expenses, and its SG&A expenses have also trended down (-13% y-o-y), the key issue appears to be the global unit decline to 51 million units (-8% y-o-y).
We note that the company faces an uphill task in ramping up lower-margin, higher-volume marketplace customers in favor of its traditional audience of higher-margin, lower-volume coupon customers. Not only does this transition necessitate a fundamental change in the company’s unit economics, but also requires significant investments on the platform side.
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