2023-05-11 08:53:34 ET
Summary
- Groupon, Inc. has fallen from grace, to put it mildly.
- Everything in the Q1 report was down; naturally the stock went down after-hours.
- I am astounded that the company still has room to cut $250 million in expenses.
- While some rare turnarounds maybe profitable in hindsight, the odds of spotting one are low.
While looking at the list of companies that just reported earnings, I stumbled upon Groupon, Inc. ( GRPN ). I used to follow this company but not recently. Hence, I was stunned to see the fall from its previous (perhaps undeserving) grace. After a 1:20 reverse split in 2020, Groupon's stock is now trading 99% below where it started traded at the time of its IPO in 2011. Not many will remember this but it was the biggest IPO by a U.S Web company since, drumroll please, Alphabet, Inc. ( GOOG ).
The intent of this article is not to review how it got here but to review its recent earnings and to warn (plead almost) investors not to bet on a turnaround. Let us get into the details.
Good:
- I know he is paid to be the commander in chief and by definition, should be optimistic but I liked the interim CEO, Dusan Senkypl's realistic tone. He acknowledges that they are in a big mess but also that there are opportunities to make Groupon better. For those who may not be aware, Mr. Senkypl is the co-founder of Pale Fire Capital , which holds nearly 1/4th of total Groupon shares outstanding.
" While our first quarter results indicate that our business is facing serious challenges, I accepted the role of Interim CEO of Groupon because I believe in Groupon's mission and I am confident that we have a winning transformation plan to rebuild Groupon and reposition it for future growth. "
"Every day I see so many opportunities to make Groupon better - if we just execute on these opportunities properly, I am confident we can accomplish our mission to become the ultimate destination for local experiences and services ."
- For those betting on a turnaround, the company highlighted that while things may be hard right now, the Total Addressable Market ("TAM") in the local experience and service space is $1 trillion. Yes, trillion with a T. Groupon's existing network and model should help it tap into at least a small portion of the TAM.
- I like the eight strategic pillars highlighted in the Q1 shareholder letter . I will not get into the details of the 8 pillars here as you can read them in the referenced letter. But the challenge here is going to be the execution. For example, pillar #4 is assembling a high performance team. I doubt many top talents are going to line up given the trajectory Groupon has been on. Nonetheless, the vision seems clear. Execution is another part.
- Operating expenses went down nearly 20% YoY while the company also touted being " On Track to Remove $250.0 million of Annualized Costs by the End of 2023 ". Honestly, I am stumped that Groupon still has so much expenses to be able to remove/safe quarter of a billion in expenses.
Bad & Ugly:
- In short, the numbers. The word "down" appears 14 times in the report
- North America revenue down 19%
- North America Local revenue down 16%
- North America gross profit down 19%
- North America active customers down 22% YoY.
For further details see:
Groupon Earnings Review: Fall From Grace