Groupon (GRPN) decides to hold on to Goods segment amid COVID-19 demand shift

Groupon Inc. (NASDAQ: GRPN) had a dismal first quarter in 2020 with a 35% drop in total revenue and an adjusted net loss of $1.63 per share. The company saw a drop of 20% in global units sold mainly due to demand being negatively impacted by the coronavirus outbreak in March and a drop in Goods sales throughout the quarter.

Groupon saw a significant drop in overall traffic and in Local and Travel units in March, which was made worse by a huge rise in refunds requested by customers who could no longer use their vouchers due to the lockdown.

Goods

During the pandemic, Groupon saw a shift in demand as more people stayed at home and ordered goods online as opposed to choosing local experiences. The Goods category proved to be a key asset during this time and led to the company reversing its earlier decision to exit the category this year. Groupon decided to continue selling Goods on its platform and managed to source relevant supply like face masks and sanitizers during the pandemic period.  

The company has experienced seasonality in some of its offerings within the Goods category where demand tends to increase during the fourth quarter holiday season. This seasonality has impacted its business and sequential revenue growth rates in the past.

The sales of Goods are an important contributor to cash flow and customer engagement and the company is looking to shift this to a third-party marketplace model, which in turn will help reduce fulfillment costs. However, despite the near-term benefit, Groupon still plans to phase down this category while giving priority to Local, where it is most differentiated.

“We intend to manage this shift in a smart way, balancing the solid cash flow generation with our move to a third-party goods marketplace. While we are continuing to leverage Goods in the near-term, we will continue to phase down the category and prioritize Local, where we are most differentiated.” – Aaron Cooper, Interim CEO    

Outlook

Groupon faced a full month’s impact from the coronavirus outbreak in April. Despite its financials being impacted by the crisis, the company remains optimistic about its recovery trends. In April, when most of the merchants in its Local categories stayed closed, the company leveraged its in-demand inventory such as consumer warehouse memberships and eLearning that customers could use during the lockdown. This helped improve unit performance.

In May, the company saw Local unit performance improve sequentially in both North America and International as restrictions eased and businesses reopened. North America Local units increased 18% in May from April. International Local units increased 30% in May versus April. The company is seeing this sequential improvement continue in June.

Stock

Shares of Groupon have dropped over 54% since the beginning of the year and the stock plunged as much as 20% on Wednesday. There is a bearish sentiment in general surrounding the stock.