Groupon names new CEO as focus on mobile pays off

New Groupon CEO

Groupon is naming acting CEO Eric Lefkofsky as permanent head of the company as his strategy of focusing on mobile and diversifying the business beyond its roots as a daily deals company show signs of paying off, in what he describes as the firm’s strongest quarter in the US to date. Revenues for the quarter ending June 30 came in ahead of expectations, up 7.1% to USD608.7m, with 50% of transactions now coming in on mobile as the firm begins to adapt its services in line with consumer behaviour. However, the firm still sank to a loss in the quarter of USD7.6m, showing it still has some way to go to prove its business model works. Nevertheless, shares in the firm are climbing as the appointment of Lefkofsky and rallying sales point toward a sturdier leadership and more positive future.

“We significantly exceeded our operating income expectations and delivered our strongest quarter ever in North America,” says Lefkofsky. “With two quarters on the job, I’m pleased with the progress we’ve made in such a short time.”

Pivots Pay off

Groupon continues to make promising advances on mobile, with the percentage of transactions on smartphones and tablets up significantly from less than a third this time last year. The firm says 50m users have now downloaded the firm’s mobile app globally, with 7.5m of these coming in the last quarter alone. This is important for Groupon as it seeks to make its offers more relevant to consumers on the move. The firm, which has been criticised for its out-moded model of spamming users with unwanted email offers every day, has rolled out a marketplace for deals and says this is gaining momentum with customers, with direct email now accounting for less than 40% of transactions.

Its North America business is posting good results, with revenues up 45% year on year, but its international division, which in part led to the departure of former CEO Andrew Mason continues to struggle. Revenues fell by around a quarter in both its ‘EMEA’ and ‘Rest Of World’ units. That said, the firm says it is pleased with improvements in gross billings for EMEA, which were up 4% year on year, and that it is now focusing its efforts in international expansion.

“The news about installing Lefkofsky played a big part,” says Macquarie Research analyst Tom White. “Investors have been very impressed by the progress he’s made since being made interim head and improving metrics particularly in the North America business.”

Challenges Remain

While investors seem relatively impressed with Groupon’ results last quarter, the firm still faces a number of challenges as it attempts to build a profitable business. The firm swung back to a loss in Q2, a significantly worse performance than the USD28m profit it posted in the same quarter last year, and is warning that its roadmap for restructuring the business suggests a prolonged period in the black is still some way off. Lefkofsky says the firm is shifting from “demand generation to demand fulfillment” as it strikes into local e-commerce territory with new features like restaurant bookings. While the move makes sense for Groupon, the e-commerce space is already dominated by big players like Amazon, as well as plenty of fast-growing dedicated services and competition is fierce.

And although its outlook forecasts good sales growth this quarter, it also includes more marketing spend. 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. 

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