Groupon’s Turnaround Strategy: Cuts 500 Jobs, Leans Into “Automation,” Withdraws 2022 Guidance

Groupon, Inc. (Nasdaq: GRPN) reported on Monday its financial results for Q2 2022, highlighting revenue of US$153.2 million. This is a decrease from Q2 2021’s revenue of US$266.0 million and also fails to beat the consensus estimate of US$159 million.

“Our overall business performance is not at the levels we anticipated and we are taking decisive actions to improve our trajectory,” noted CEO Kedar Deshpande. “We are significantly reducing costs, and based on the progress we’re making on our initiatives to drive customer purchase frequency, we are now ready to begin reinvesting in marketing to drive growth.”

The coupon platform bared its turnaround strategy that aims “to sustainably generate positive free cash flow, every quarter, starting in the fourth quarter of 2022.” The two-pronged approach targets to reduce its cost structure and improve its marketplace experience.

On restructuring its costs, the company said that it has “begun executing a multi-phase cost savings plan” aimed at reducing expenses by approximately US$150 million while incurring around US$10 – US$20 million in the process. Part of the plan includes “right-sizing [the] tech organization…reducing [the] tech costs by approximately $60 million or nearly 30% of [the] annual spend,” as well as rationalizing the firm’s real estate footprint “to align with the size of the current business and a hybrid work model.”

“We have made significant progress streamlining our tech platform and leaning into automation throughout our organization and, as a result, we believe we can take $150 million in annual costs out of our business by the end of 2023,” said Interim CFO Damien Schmitz. He also added that the management believe they can “identify an additional $50 million in savings by the end of 2023.”

Presumably part of the “right-sizing,” the company confirmed that it is laying off 500 of its employees–roughly 15% of its workforce. In an internal memo, Deshpande told the Groupon staff about the job cuts that would impact “primarily across [the] Technology organization, North America Sales and [the] Australian Goods business.”

“Put simply, our cost structure and our performance are not aligned. In order to position Groupon to successfully execute our turnaround plan, we have to lower our cost structure,” Deshpande explained. He added that affected employees will given “the option to keep their laptops, offer outplacement services as an additional resource, and…provide the opportunity to submit their information into a Groupon Talent List.”

The company also added that since it is in the middle of its turnaround strategy, it is withdrawing the previously announced full year 2022 revenue and adjusted EBITDA guidance. However, it is projecting–as a result of the strategy–2023 to record US$100 million in annual free cash flow and 15% – 20% in adjusted EBITDA margin.

The quarterly gross profit went up to 87.4% from 72.9% in the comparable period last year. But with operating expenses larger than the topline revenue figure, the company recorded an operating loss of US$66.5 million compared to a loss of US$2.0 million last year.

Further down, the quarter saw US$90.3 million in net loss, down from the previous year’s net loss of US$3.4 million. The bottomline figure translates to US$3.04 loss per share.

The firm, however, recorded a gain on adjusted EBITDA for the quarter, ending at US$5.7 million coming from a loss of US$7.0 million last year. The increase during the quarter is mainly attributable to an US$89.1 million unrealized gain in equity investment and US$35.4 million goodwill impairment.

Adjusted loss per share ended at US$0.34, missing the consensus of US$0.33 loss per share.

The company ended the quarter with US$315.6 million in cash and cash equivalents. This puts the firm’s current assets at US$410.5 million while current liabilities ended at US$493.9 million.

Groupon last traded at US$12.83 on the Nasdaq.

Information for this briefing was found via Yahoo News, Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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