“Our strategy is focused on two areas: reducing our cost structure and fundamentally improving our marketplace experience to support long-term growth,” CEO Kedar Deshpande said in announcing second-quarter earnings after the markets closed today.
“Our overall business performance is not at the levels we anticipated and we are taking decisive actions to improve our trajectory,” wrote Deshpande, who joined Groupon from Zappos in December. “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.”
Part of its cost-cutting strategy will involve automation as the company moves toward a long-time goal of allowing merchants to create their own deals.
“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,” Damien Schmitz, interim chief financial office said in a statement. “We’ll also be looking at other ways to reduce our costs, and believe we can identify an additional $50 million in savings by the end of 2023.”
The company’s shares rose 8% today to $13.87 per share, ahead of the announcement. But the stock is down 40% since the beginning of the year.
Groupon pioneered the business of allowing businesses to attract customers by offering deep discounts on food, services and other products. The company was a tech darling when it went public in late 2011, but it soon began to falter and has struggled to find growth and profitability. After a 20-for-1 reverse stock split two years ago, Groupon avoided delisting.
The COVID-19 pandemic, and the accompanying lockdowns, didn’t help a company that’s heavily dependent on in-person experiences. Groupon cut 2,800 jobs two years ago.
It’s still struggling. Groupon’s revenue fell 42% in the second quarter from a year earlier, and its losses swelled to $90 million from $3.1 million. The company’s active customers dropped 15% and units sold dropped 28%.
“We’re moving with a sense of urgency to execute a turnaround strategy that we believe will fundamentally reposition our business to grow profitably in a variety of economic cycles,” the company said in a memo. “While some of the cost-cutting actions that we announced today were extremely difficult, particularly those with employee impacts, they were necessary to our ability to make progress and live up to our potential.”
The cutbacks come as a new investor has emerged. The company agreed to add two directors this year from Pale Fire Capital after the hedge fund based in the Czech Republic acquired roughly 22% of Groupon’s stock, eclipsing Groupon founder Eric Lefkofsky as the largest shareholder with 13%. Pale Fire is the latest in a string of investors that have traded in and out of the stock, betting on a turnaround that has thus far proved elusive.
