Groupon surprises with higher revenues and narrowing losses

Rise in mobile sales

A rise in mobile sales boosted Groupon’s performance in the first quarter, with the firm posting a surprise increase in revenues and narrowing its losses to USD4m. Revenues were up 7.5% year on year to USD601.4m and while Groupon still isn’t profitable, its net loss figure is a vast improvement on the USD11.7m posted in the same period a year ago and the USD81.1m loss last quarter. Its gross billings also rose 4% to USD1.4bn. But while Groupon performed better than forecast, it still has a lot of work to do to following a dramatic fall in revenue growth amid concerns about the sustainability of the daily deals model.

Mobile Boost

Mobile was a particular high point for Groupon, with 7m people downloading its mobile apps and deals sold through them accounting for 45% of its North American business. But its international business, which caused the exit of founder and former CEO Andrew Mason, continues to struggle. While revenues in North America were up 42.3% year on year to USD339.6m, in the rest of the world its sales fell 18.4% to USD261.8m. Chairman and co-CEO Eric Lefkofsky blames this on a lack of “infrastructure enhancements that have sustained the North American business”. He says the firm is working on building out the services it offers to both consumers and merchants internationally, including standardising deals and getting them up on the site faster.

Challenges Remain

While these results are a step in the right direction, Groupon continues to face huge challenges. Competition is mounting, with Barclaycard just the latest firm to wade into the daily deals space with its own service. And its outlook includes more spending, with the firm planning investments of between USD15m and USD30m in customer incentives and marketing this quarter. The firm’s expenses have always been contentious and it has been forced to spend swathes of cash in attracting both consumers and merchants to its site. Groupon also admits that while its goods division is seeing growth, margins are still poor as it faces high fulfilment, infrastructure and shipping costs.

There is also the issue of a lack of CEO. Currently Lefkofsky and vice chairman Ted Leonsis are running the company. But this is only a temporary solution while Groupon searches for a new leader. The firm says the current leadership team is “gelling well” and has formed a committee to find “the ideal long-term CEO”. But they appear to be in no rush.

Groupon By The Numbers

¤ Revenues increase 7.5% to USD601.4m.
¤ Losses narrow from USD11.7m a year ago to USD4m in Q1.
¤ Gross billings up 4% to USD1.4bn.
¤ Almost 45% of transactions in North America now occurs on mobile.
¤ North American revenues up 42.3% to USD339.6m, but internationally this figure fell 18.4% to USD261.8m.

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