Groupon – which has exited three Asian markets this year – continues to struggle globally with ts flawed discounting model.
Operating on wafer thin margins in the first place, the company has taken a severe hit from currency exchange fluctuations in the third quarter.
Globally, gross billings grew by six per cent when the exchange rate impact is excluded; similarly, global revenue increased by a more positive seven per cent on a constant currency basis.
But after taking into effect the strengthened value of the US dollar against foreign currencies this year, Groupon saw its net losses grow by some $6.4 million to $27.6 million.
As reported by Inside Retail Asia in September, the listed US eCommerce business has closed its doors in Thailand, the Philippines and Taiwan. Outside Asia it has already exited Greece and Turkey and will now close operations in Panama, Morocco, Puerto Rico and Uruguay.
Neil Saunders, CEO of Conlumino, says the impact of currency fluctuations is worsened by the fact that the company operates off relatively low margins, especially outside of its North American heartland, and as such does not have much of a buffer against their deleterious effect.
“The margin position is partly down to the multiple systems that Groupon operates across the globe which increase complexity and do not allow for economies of scale. While this is something the company has been remedying by moving to a common platform, we believe that the benefits have, so far, been fairly modest.”
Saunders says margins are also held back by a further issue, arising from Groupon’s revenue mix.
“At present, the company divides itself into three main segments: Local, Goods, and Travel. Local is concerned with deals from service providers like restaurants, events and activities. Goods is focused on consumer products like jewellery, electronics and apparel. And Travel is about holiday, flight and accommodation deals.
“Recent growth in the more mature Local part of Groupon’s business has slowed considerably. Indeed, in Q3 growth was just under eight per cent. Comparatively, Travel and Goods have both seen strong growth, up 20 per cent and 18 per cent, respectively. This rebalancing of the revenue mix has diluted margins, mainly because Goods are far less profitable for the firm.”
Saunders says gross profit as a percentage of gross billings for Goods is 13 per cent compared to 30 per cent in Local and 18 per cent in Travel.
“To be fair, the margin performance of Goods has improved over the past year – but not by much. Over future quarters, we see the prospects for margin gains to be slight given that Groupon has to work harder on Goods deals in a market that remains very promotional.”
Saunders believes there is little comfort ahead for Groupon in the fourth quarter.
“Groupon is forecasting that revenues will come in at $865 million, at best. This is quite some way below the $883 million generated last year.
“In our view, such anemic numbers do not paint a rosy picture for future profits. They also bode badly for the start of the new fiscal year – an issue the new CEO, Rich Williams, who is replacing Eric Lefkofsky who’s stepping into the role of chairman, will have to deal with,” Saunders concluded.
