Groupon Earnings: With No Sign of a Network Effect the Search for Growth Continues, Possibly in 2025

Groupon’s GRPN slide continued in the second quarter as the firm is still struggling to maintain its local merchant supply and active customers. The decline in active customers slowed a bit sequentially but was still a 17% year-over-year decline, which further reduces the likelihood of a network effect. We did not make any significant adjustments to our model and are maintaining our $19 fair value estimate for no-moat Groupon.

With no sign of a network effect, the firm may have decreased the chances of a return to growth as it lowered marketing spending in actual dollars and as a percentage of revenue year over year for the third consecutive quarter. Promotion spending, which had increased for a few years, declined for the second consecutive quarter, which aids cost-cutting efforts and raises the value proposition for merchants. While we don’t think the promotional spending was the largest obstacle that made Groupon unattractive for merchants, we also think this reduction in spending may counteract efforts to slow the attrition of active customers. For this reason, management intends to slightly increase its performance-based marketing. In our view, the firm should first focus on bringing onboard more merchants and enhancing the product and service offerings to the consumers, which could attract customers or help further slow down attrition.