Groupon Struggles With Weak International Demand for Deals

CEO Andrew Mason Cites 'Execution Issues' In Europe

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Groupon, the largest daily-deal website, fell as much as 25% in early trading after reporting third-quarter revenue that missed estimates as sales of coupons overseas declined from the previous period.

The net loss was $2.98 million, the Chicago-based company said yesterday in a statement. Sales rose 32% to $568.6 million, missing the $591 million average analyst estimate, according to data compiled by Bloomberg.

Andrew Mason and Rob Solomon
Andrew Mason and Rob Solomon Credit: Tim Klein

Groupon, which has lost 80% of its value since holding an initial public offering a year ago, has struggled to grow abroad, where it makes nearly half its revenue. While the company has taken steps, such as adding new management, to bolster its business in Europe, currency movements and weak demand for online coupons outside the U.S. continue to pose challenges, said Sameet Sinha, an analyst at B. Riley & Co. in San Francisco.

"Some people have expected a quick turnaround in Europe," said Mr. Sinha, who has a neutral rating on the stock. "What they don't understand is it's a huge task."

Groupon shares fell to as low as $2.93 in early trading. The stock had advanced 4.3% to $3.92 at the close in New York yesterday.

International revenue was $276.9 million, or 49% of total sales. That was down 10% from the second quarter of this year, when sales outside the U.S. were $308.2 million.

Groupon Goods, an e-commerce site started last year, reached a projected $500 million in annual sales, the company said. While the service is growing more rapidly than the daily-deals business, it has lower profit margins, Jason Child, chief financial officer, said in a telephone interview.

"Customers have embraced that product line since we launched it a little over a year ago, definitely a little faster than we expected," Mr. Child said. "That is leading to margin reductions."

The company makes money by offering discounts -- known as Groupons -- from businesses such as restaurants and nail salons. It then splits the revenue with the businesses.

Profit margins will come under further pressure as the company seeks to add thousands of merchants by offering them a greater share of revenue from coupons, Mr. Child said.

Groupon said yesterday it's eliminating 80 sales jobs as it automates its sales and marketing operations. The company has more than 12,800 employees.

"Groupon announced several months ago it would be using technology to increase productivity through automation," Julie Mossler, a spokeswoman for Groupon, said in an emailed statement before the earnings announcement. "We will always aim to optimize business operations wherever opportunities are identified."

CEO Andrew Mason plans to address what he calls "execution issues" in Europe by bringing smarter technology and more of a focus on merchant satisfaction to the region, he said on a call with analysts yesterday.

"To fix our international business we are following the playbook that we wrote for North America," he said. "We're cautiously optimistic and confident that we're on a path to continued improvement in Europe."

Fourth-quarter revenue will be $625 million to $675 million, Groupon said in the statement. That compares with an average analyst estimate of $637 million.

Groupon last month unveiled an application for Apple's iPad that lets merchants track purchases. The app works in conjunction with Groupon Payments, a credit card-reading service designed to compete with EBay Inc.'s PayPal and Square Inc.

LivingSocial, the top rival to Groupon, had a net loss of about $566 million in the third quarter, partly because of an impairment charge on acquisitions, CEO Tim O'Shaughnessy told staff in a memo last month.

-- Bloomberg News --

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