Groupon, Inc. · NASDAQ:GRPN
Groupon — Q4 2019 Earnings Presentation
50 slides from Groupon's earnings presentation, Feb 19, 2020
Slide 1: 4Q19 Earnings
4Q19 Earnings February 19, 2020 1 GROUPON, INC. PRIVILEGED AND CONFIDENTIAL – DO NOT DISTRIBUTE
Slide 2: Forward-looking statements
The statements contained in this presentation that refer to plans and expectations for the next quarter, the full year or the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
Slide 3: Groupon: The Destination for Local Experiences
GROUPON THE DESTINATION FOR LOCAL EXPERIENCES. GROUPON |:
Slide 4: Focusing on Our Large Addressable Market Opportunity
FOCUSING ON Our Large Addressable Market Opportunity
Slide 5: Connecting 43M+ customers to hundreds of thousands of merchants
Connecting 43M+ customers to hundreds of thousands of merchants E-commerce brand 1 ● Two-sided marketplace with massive global scale ● More than 1.5B Groupons sold across 1M+ U.S. internet users come to merchants to date Groupon every month 2 ● ~50% of our customer base has been shopping Groupon for
Slide 6: Our best customer wants a local experiences destination
Our best customer... ● Our best NA customers purchased ~58% of total units sold in 2019 and spent ~$2.1B1 last year has household income of $75K to $100K ● They purchased from us ~7x in 2019 on average ● 1 more purchase from these best customers per year is ~$300M1 opportunity lives in a city ● We a
Slide 7: Capturing only a fraction of the market opportunity
…yet we are capturing only a fraction of the market opportunity for local experiences where we have a right to win $1T+ addressable market Things to Do Beauty & Wellness Dining $1B+ $900M+ $350M+ < 1% share in 2019 Billings in 2019 Billings in 2019 Billings Concerts Massage Restaurants Sporting Even
Slide 8: Challenges and Factors We Can Control
Challenges Factors We Can Control >$100M in Annual From To Macroeconomic Challenges Traffic Headwinds Consumer Demands Goods category declines Goods exit Category SEO strategy Declining traffic New traffic channels Goods Category can’t Marketing automation compete Email Local inventory scaled, but not den
Slide 9: Winning in local experiences will ignite the marketplace flywheel
● Winning in local experiences will ignite the marketplace flywheel and drive sustainable growth and upside ● Plan to exit Goods will allow us to focus execution on our local experiences marketplace ● Our strategy includes ○ Inventory: Build high-quality density in core cities and bring on merchants’
Slide 10: Large global local purchaser base and improving purchase frequency
Large global local purchaser base and improving local purchase frequency Local Purchasers Year-Over-Year % Local Units/Local Purchaser Year-Over-Year % 10 Local purchasers = at least one Local purchase in the quarter
Slide 11: Goods take up ~40% of impressions but ~20% of gross profit
Goods take up ~40% of impressions but deliver ~20% of gross profit ● Goods business is a headwind to performance Poor Goods Performance Supports Exit Plan ○ Cross-shopping between Local and Goods continues to decline ○ Historically an important Local engagement tool, now minimal ○ Goods consume dispr
Slide 12: Marketplace flywheel
Geo-targeted Inventory Full Catalog and Location and Self Service Personalization Quality Amazing Merchants Growth Mobile CX Customer and New App and Yield Traffic Scale Management Frictionless Booking 12
Slide 13: 13
13
Slide 14: Build high-quality density in core cities and bring on full catalogs
Build high-quality density in core cities and bring on merchants’ full catalogs ● Reach merchants per capita targets in 10+ cities in 2020 ● Increase offers per merchant; 80%+1 of total merchants on evergreen contracts globally ● Grow global bookable offers to 70% of total by 2022 Accelerate bookable
Slide 15: Inventory scale and growth are key to unlocking purchase frequency
Inventory scale and growth are key to unlocking purchase frequency Supply density matters: Drive high-quality inventory growth in priority Our highest density markets show cities 15-20% improvement in purchase frequency Bring on merchant’s full catalog, not ~60% billings CAGR1 just heavily discounte
Slide 16: Third-party inventory growth and partnerships
● Since 2017, third-party inventory has grown as a % of total inventory ● Partnerships can further accelerate growth of bookable hyper-local supply ● Next gen API should accelerate partnership integrations ○ Goal: Accelerate integration speed by 50% ● Broader portfolio of low discount/low margin offe
Slide 17: Our Strategy to Win: Modernize Our Marketplace
Our Strategy to Win: Modernize Our Marketolace
Slide 18: Product roadmap prioritizes voucherless, bookable, search and discovery
Product roadmap prioritizes voucherless, bookable, search, discovery, and curation to remove customer and merchant friction Launch a modern mobile experience ● New app in 2Q 2020 ● Leverage machine learning to produce rapid insights that power curation, search relevance and other UX improvements ● I
Slide 19: Voucherless, Bookable, Local-first modern design
Voucherless Modern Design Bookable Personalized UI Local-first Curated Merchandising Quality-led Map-based Search 19
Slide 20: Position Groupon as a more valuable sales and customer acquisition channel
Position Groupon as a more valuable sales and customer acquisition channel and lay the foundation for expanding merchant ad services From To Limited ongoing engagement with platform and customers Ongoing use of Groupon for customer acquisition, retention and insights Tools that make it easier for me
Slide 21: Merchant Cohort Retention Rate
Merchant Cohort Retention Rate1 ● On average, ~30% of our merchants remain on Groupon 3 years after their first sale ● Retained merchants sell ~30% more units in Year 4 vs. Year 12 ● 2013 cohort merchants have sold $4.6B+ on the Groupon marketplace ● We’ve placed over 80%3 of merchants on evergreen c
Slide 22: Steady cadence of new features
Prioritizes strategic inventory growth, marketplace modernization & merchant success Steady cadence of new features will improve the customer and merchant experience Voucherless • Curation • Bookable • Search • Discovery • Personalization Modernization Modernization Modernization Modernization •Map-
Slide 23: Our Strategy to Win: Relaunch the Groupon Brand
Our Strategy to WIN: Relaunch the Groupon Brand
Slide 24: Well-known brand, but not top-of-mind
While Groupon is a well-known brand, we are not top-of-mind Aided Awareness 88% Top-of-Mind 2022 Goal Awareness Increase 23% by 50% Consideration 77% Familiarity 50% Likelihood to Purchase 32% 24 US Data as of January 2020
Slide 25: Aggressive mid-funnel focus to drive top-of-mind awareness
Aggressive mid-funnel focus to drive top-of-mind awareness Global Brand Relaunch UPPER Force brand reconsideration Build SEO/Social/Content MID Capture “intent” at mid-funnel Optimize Transactional Efforts LOWER New traffic sources and move beyond “last click” POST Drive Retention/Frequency by Unlockin
Slide 26: New marketing strategy to leverage brand asset
New marketing strategy to leverage brand asset ● Selected TBWA\Chiat\Day ● 12-week brand development/customer research process ● Brand position will support global vision for local experiences marketplace ○ Touching all communications platforms including UX, merchants, employees, customer service ●
Slide 27: Our Strategy to Win: Reduce Our Cost Structure
Our Strategy to WIN: Reduce Our Cost Structure
Slide 28: Meaningful opportunities to lower costs
Meaningful opportunities to lower costs, improve speed and leverage Planned exit of Goods category will allow us to right-size our spend to support our go-forward business Estimate we can take out ~$751 million of direct costs related to Goods exit Pursuing additional $50+ million cost savings oppor
Slide 29: The International growth opportunity is large
The International growth opportunity is large if we apply our global strategy 40%+ ● International market is ~2x size of NA ● Many top 50 markets are in International ● Customer/Merchant penetration very low $301M1 ● Since rationalizing our country footprint in 2017, we have been working to build in
Slide 30: 2020 and Long-Term Outlook
2020 and Long-Term Outlook
Slide 31: 2020 Challenges and Milestones
2020 Challenges 2020 Milestones ● Consulting and negotiating with ● Product: launch a new mobile app and expand International Works Councils which could bookable offers; impact expected timing of planned Goods exit ● Units: grow North America Local units year-over-year in the second half of 2020; ● M
Slide 32: 2022 Outlook
Annual Metrics 2022 Outlook Unit Growth % High single-digits Billings Growth % High single-digits Revenue Growth % Mid single-digits Adjusted EBITDA Margin1 High teens (1) Adjusted EBITDA Margin is defined as Adjusted EBITDA as a % of Revenue. Adjusted EBITDA (AEBITDA) is a non-GAAP financial measure.
Slide 33: Long-term Targets
Metrics Target Billings Low Double-Digits Revenue Take Rate1 28% to 30% Adjusted EBITDA Margin2 Mid 20% range Free Cash Flow Conversion Rate 65%+ (1) Take rate is defined as revenue as a % of billings 33 (2) Adjusted EBITDA margin is defined as Adjusted EBITDA as a % of revenue
Slide 34: Q4 Results
O4 Results
Slide 35: Ending the year with 43.6M active customers
Ending the year with 43.6M active customers 48.2 47.2 $27.59 $27.51 46.2 45.3 $27.42 $27.45 43.6 $27.19 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 Global Active Customers1 (millions) Global TTM Gross Profit/Active Customer1 (1) Active customers represent unique user accounts that have made a p
Slide 36: Global gross profit of $310 million in Q4
Global gross profit of $310 million in Q4 $248 $118 $366 $103 $96 $94 $310 $210 $306 $292 $207 $86 $278 $199 $192 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 North America International Global 36
Slide 37: North America gross profit of $207 million in Q4
North America gross profit of $207 million in Q4 $248 $180 $210 $56 $170 $207 $161 $199 $158 $155 $192 $33 $31 $28 $26 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 NA Local Gross Profit NA Goods Gross Profit NA Gross Profit 37
Slide 38: International gross profit of $103 million in Q4
International gross profit of $103 million in Q4 $80 $74 $69 $66 $118 $61 $103 $96 $94 $28 $86 $20 $20 $19 $17 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 International Local Gross Profit International Goods Gross Profit International Gross Profit 38
Slide 39: Marketing decreased $4 million in Q4
Marketing (including order discounts) decreased $4 million in Q4 Marketing + Order Discounts (USD Millions) $159 $155 $145 $146 $136 $49 Incremental Gross Profit Marketing ROI = = 100% $52 $57 $731 Incremental Marketing Spend $61 Time to Payback — 12 to 18 months $110 $89 $93 $82 $75 4Q18 1Q19 2Q19 3
Slide 40: Additional Data Disclosure
Additional Data Disclosure
Slide 41: 2022 Goal: ~70% global inventory is bookable
2022 Goal: ~70% global inventory is bookable ● International bookable inventory grew over 25% in 2019 ● International Dining vertical is 65%1 bookable; other verticals are beginning to scale ● Groupon booking tool launched in North America in Q4 2019 41 (1) as of December 31, 2019
Slide 42: Customer cohorts: local, travel and cross-shoppers
Local, travel, and cross-shoppers only; excludes goods-only purchasers ● Customer cohorts have degraded since 2011 early adopters ● Monetization of local customers has increased, in-line with our focus on quality vs. quantity ● Increasing customer LTV helping to offset lower retention rate ● Current
Slide 43: Cumulative local spend by customer cohort
Cumulative local spend1 by customer cohort Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Quarters since activation 43 (1) Represents total value a customer has spent on our platform before refunds
Slide 44: 80+ Grouponable moments per year
We estimate there are 80+ Grouponable moments per year >20% of customers purchase 4x+ / year Driving purchase frequency from 2-3x to 4x per year is ● 4x+ per year customer base has >$200M GP opportunity been stable since 2013 ● ~70% retention rate for 4x+ per year customers in 2019 ~30% of customers
Slide 45: Traffic by channel
● Traffic headwinds of over $100M in 2019, largely driven by declines in email traffic ● Focused on decreasing our dependence on email and leveraging our direct traffic ● ~48% of traffic comes to us direct; ~65% of traffic comes to us from free channels other than email ● Driving paid traffic growth with greate
Slide 46: >80% of traffic on mobile
● >80% of traffic on mobile1 ● Mobile web traffic converts at 50%1 of mobile app; mobile app at ~75%1 of desktop and has been taking share from desktop ● UX improvements aimed at driving conversion rate expansion Desktop Mobile Web App 46 (1) as of December 31, 2019
Slide 47: Winning in local experiences will ignite the marketplace flywheel
● Winning in local experiences will ignite the marketplace flywheel and drive sustainable growth and upside ● Plan to exit Goods will allow us to focus execution on our local experiences marketplace ● Our strategy includes ○ Inventory: Build high-quality density in core cities and bring on merchants’
Slide 48: Appendix
Appendix
Slide 49: Adjusted EBITDA - Quarterly
Adjusted EBITDA - Quarterly 49
Slide 50: Free Cash Flow
Non-GAAP Reconciliations Free cash flow is a non-GAAP liquidity measure. The following is a reconciliation of free cash flow and free cash flow excluding the IBM settlement to the most comparable U.S. GAAP liquidity measure, Net cash provided by (used in) operating activities from continuing operati