Groupon Conference Call Highlights

Groupon Inc GRPN reported its third quarter earnings. Shares of the company are up 22 percent.

Below are some key highlights from its conference call.

• Q3, which drove a 39% increase in our overall gross billings to $1.86 billion, with revenue increasing 27% to $757 million.
• Adjusted EBITDA continued to increase coming in at $67 million and non-GAAP EPS came in above our range at $0.03.
• North American performance was strong.
• Gross billings grew 16% to $774 million driven by double-digit growth in all three categories: Local, Goods and Getaways.
• North American revenues increased 16% to $418 million, gross profit was $176 million, and segment operating income was $13 million.
• These are strong results despite a tough prior-year comp in Local growth and given that Q3 is typically a seasonally low point for Local as people travel throughout the summer months.
• EMEA billings growth accelerated from under 1% last quarter to over 10% in Q3, reaching $489 million.
• Revenue growth was 56% compared with 42% last quarter, reflecting a greater mix of direct revenue.
• In addition, we generated $22 million in segment operating income.

Three Primary Objectives:

• Reaccelerate Local growth in North America and abroad;
• Improve the gross margins and operating efficiency of our Goods business
• Continue to achieve stability in our international operations and reduce our losses in Rest of World.

Reaccelerate Local growth in North America and abroad:

• Every quarter we have nearly 12,000 people worldwide focused on initiatives to drive growth.
• Headwinds related to redemptions, email declines, and a shift in consumer behavior as we transform to a mobile marketplace.
• As these headwinds began to subside in Q3, for the first time in a year we saw the positive drivers outweigh the negative ones.
• After three quarters in a row of slow growth, our North American Local billings growth accelerated in Q3 from 1.8% last quarter to 10%, achieving our target of double-digit growth by year-end.
• Redemptions have stabilized as it appears we have burned through a good deal of our consumers' backlog of unused Groupons.
• Growth of redemptions is now aligned with our growth in Local billings as opposed to being significantly higher.
• In addition, our email business has stabilized after falling for the past several years and our customer satisfaction and merchant quality are at or near all-time highs.
• As the headwinds continue to ease, we expect continued strength in our Local business, yet we're not just focused on driving billings growth in Local.
• We also intend to drive gross profit dollar growth.
• Take rates in North America Local improved from 35.7% last quarter to 36.3% this quarter.
• Take rates in Local will remain within the range we've seen over the past year or so, bouncing between about 35% and 38%.
• Improve the gross margins and operating efficiency of our Goods business:
• Our shipping and fulfillment costs have historically been almost 2x that of other comparable e-commerce companies.
• To address this we're making some significant changes, including shifting more of our business to drop ship, moving more fulfillment to our own distribution center in Kentucky and increasing units per order.
• Double-digit target reaching 10% in the quarter.

Continue to achieve stability in our international operations and reduce our losses in Rest of World:

• Our One Playbook initiative to standardize best practices globally has really begun to pay off, helping to drive the almost $12 million reduction in our segment operating loss.
• The operating loss is nearing breakeven.
• Our Asian businesses are growing at an accelerated pace driven by TMON.
• During the third quarter TMON billings grew over 60% year-over-year, as that business continues to thrive and gain market share in the fifth largest e-commerce market in the world.
• As a result of the significant growth opportunities that exist for TMON as well as our Asian businesses more broadly, we've hired financial advisors to help us evaluate a range of financing and strategic alternatives in APAC.
• We're exploring opportunities to unlock significant shareholder value, while positioning the businesses to maximize their long-term potential in these large, fast-growing markets.
• As part of this exploration, Kal Raman will be moving on to explore other opportunities outside of Groupon.
• Kal has helped us build a tremendous team around the world that is ready and eager to lead us in the next stage of our company's growth.

Mobile:

• Mobile remains well over half our business and growing as over 100 million people have now downloaded our apps.
• Our marketplace of about 300,000 deals continued to gain broader awareness contributing to double-digit growth in North American Local.
• And we believe our international business has really turned the corner.
• Our percent of mobile transactions continued to increase in Q3, including some countries that are approaching a mix that is well above 65% mobile.
• We have over 250 million subscribers and nearly 53 million customers who made a purchase in the last year alone.

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Posted In: EarningsNewsconference call
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