Groupon Earnings: Decline In Gross Billings Slowing, but Focus Is Now on Financial Flexibility

Key Morningstar Metrics for Groupon

• Fair Value Estimate: $17.50
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Groupon’s Earnings

While there were some early indications of a turnaround, such as a significant slowdown in the year-over-year decline of gross billings, Groupon GRPN continued to burn cash during the third quarter, further increasing its risk of becoming cash-strapped. For this reason, the firm announced it will raise nearly $100 million through the combination of a fully backstopped rights offering and the sale of some of its stake in SumUp.

Given the rights offering, management also provided fourth-quarter guidance and some color regarding 2024, most of which was in line with our projections. After considering the dilutive impact of the rights offering, we lowered our fair value estimate to $17.50 from $19.00 per share.

Third-quarter gross billings of $418.8 million declined only 3% from last year, an improvement from the double-digit declines during the previous five quarters, as U.S. local gross billings increased for the first time since the pandemic. Total revenue declined 12% to $126.5 million, mainly due to a mix shift in products and services available on the platform, which lowered the firm’s take rate.

While more merchants have begun to come on board, the additional content has not been attracting more customers, which declined 16% year over year and 3% sequentially. However, it was an improvement from the previous quarter’s 17% year-over-year and 4% sequential declines.

Adjusted EBITDA of $18.2 million (14% margin) was an improvement from last year’s loss of $8.6 million, helped by cost control mainly in selling, general, and administrative expenses, which declined 33% from last year and improved 20 percentage points as a share of revenue. The firm also spent less on promotions, which reduced marketing expenses by 24% and 3 percentage points as a percentage of revenue.