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Groupon plans to buy LivingSocial

October 26, 2016 04:15 PM
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After years of rivalry, Groupon Inc. is buying its struggling rival, LivingSocial Inc., in a move that will enable it to acquire a “significant number of new customers at an ROI that is well within our thresholds,” the company says.  Both companies started out as online daily deal marketers for local merchants, but have since expanded their businesses to include online retailing. The deal is expected to close next month.

The move comes amid Groupon's push to "streamline and simplify" its business. For example, it now operates in 26 countries, down from 47 a year ago, with plans to further reduce its footprint.

"We've arrived at what we believe is the right operational footprint: 15 countries, primarily in North America and Europe," said Groupon CEO Rich Williams during a conference call with analysts. "While this means we plan to exit some of our smaller and more speculative markets, the fact remains that we're still in the early days in our largest markets and in local commerce in general and believe our resources are better deployed where we already have a solid start and room for significant long-term growth."

Groupon has also been pushing to reduce what it calls "empty calories," that is, its low to negative margin products that drive short-term increases in revenue, but little in the way of healthy, long-term customer behaviors or profits. While it had been making progress on that front in the previous three quarters, its margins actually rose in the third quarter.

"The challenge here is to find the right balance of top-line growth and gross profit growth over the long term," Williams said. "In the third quarter, while unit sales growth remained strong, our tests on a number of pricing levers simply didn't deliver the optimal results. Instead, we saw a modest gross margin decline without the benefit of significant billings growth. We're not happy with the result, but we've adjusted and believe our shopping business is on solid footing heading into Q4."

To bolster its revenue, Groupon plans to roll out a new mobile app next month. Its mobile app is incredibly important to the company given that it has been downloaded 139 million times and 60% of its transactions occur on mobile devices—many of those transactions taking place on its app.

"Our strategy continues to deliver results with double-digit growth in North America local billings and our highest quarter for customer acquisition in over three years," says . "We are looking forward to a strong finish to the year and further progress on our mission to make Groupon a daily habit for consumers."

For the quarter ended Sept. 30, Groupon, No. 26 in the Internet Retailer 2016 Top 500 Guide, reported:

  • Total revenue of $720.5 million, up slightly from $713.6 million a year earlier.
  • North American revenue of $483.2 million up 4.2% from $463.9 million
  • International sales of $237.2 million, a 5.0% decline from $249.7 million
  • Groupon Goods revenue of $424.6 million, up 3.2% from $411.6 million.
  • North American revenue for Groupon Goods of $285.8 million, a 2.5% increase from $278.8 million.
  • International revenue for Groupon Goods of $138.8 million, a 4.5% increase from $132.8 million.
  • A loss from continuing operations of $35.8 million compared to a $24.6 million loss.
  • A net loss of $38.0 million compared with a year-ago loss of $27.6 million
  • Gross billings, which reflect the total amount consumers paid for Groupon vouchers, excluding applicable taxes and refunds, stood at $1.432 billion, a 2.5% decrease from $1.468 billion.

For the first three quarters of the year, Groupon reported:

  • Revenue increased to $2.208 billion, up slightly from $2.202 billion in the same period a year earlier.
  • North American revenue of $1.501 billion, a 5.3% jump from $1.425 billion.
  • International sales of $707.5 million, a 9.0% decline from $777.3 million.
  • Groupon Goods revenue of $1.296 million, up 3.8% from $1.248 billion.
  • Operating loss of $133.1 million compared to a $56.6 million loss a year ago.
  • A net loss of $142.0 million compared with a year-ago gain of $67.2 million.
  • Gross billings stood at $4.397 billion, down 3.3% from $4.549 billion.
 

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