Groupon, Inc. Q2 FY2025 Earnings Call

Hello, and welcome to Groupon's Second Quarter 2025 Financial Results Conference Call. On the call today are Chief Executive Officer, Dusan Senkypl; Chief Financial Officer, Jiri Ponrt; and Senior Vice President of Finance Rana Kashyap. Today's call will be a question-and-answer session only. The company has posted earnings materials, including earnings commentary on the company's Investor Relations website at investor.groupon.com. Today's conference call is being recorded. Before we begin, Groupon would like to remind listeners that the following discussion and responses to your questions reflect management's views as of today, August 7, 2025 only, and will include forward-looking statements. Actual results may differ materially from those expressed or implied in the company's forward-looking statements. Groupon undertakes no obligation to update these forward-looking statements as a result of new information or future events. Additional information about risks and other factors that could potentially impact the company's financial results are included in its earnings press release and in its filings with the SEC, including its quarterly reports on Form 10-Q. We encourage investors to use Groupon's Investor Relations website at investor.groupon.com as a way of easily finding information about the company. Groupon promptly makes available on this website the reports that the company files or furnishes with the SEC, corporate governance information and select press releases and social media postings. On the call today, the company will also discuss the following non-GAAP financial measures: adjusted EBITDA and free cash flow. In Groupon's press release in their filings with the SEC, each of which is posted on its Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. And with that, I'd like to turn it over to Dusan to make a few opening remarks before we jump into Q&A.

Hello, and thanks for joining us for our second quarter 2025 earnings call. It's a pleasure to be with all of you. Yesterday, after the market closed, we released our earnings and posted our earnings commentary on our Investor Relations website. Today, my plan is to make brief opening remarks and then open up the call for questions, both live from our analysts and several that were pre-submitted in advance. For more details on our quarterly performance, I encourage you to read our earnings commentary. In addition, I encourage you to review our press release and 10-Q, which contain more detail on our fourth quarter and full year results. I'm pleased to report another strong quarter of accelerating growth. Global Billings grew 12% year-over-year, marking continued acceleration in our growth trajectory. This was driven by strong performance in our core local category, with North America Local Billings up 20% year-over-year and International Local Billings, excluding Italy and Giftcloud, up 15% year-over-year. Combined, our core local category, excluding Italy and Giftcloud, grew 19% and now represents nearly 90% of our billings. This validates the scalability of our marketplace transformation playbook and keeps us on track toward our target of accelerating global billings growth to over 20% by 2027. We generated strong positive free cash flow of $25 million, demonstrating our ability to drive profitable growth while investing in our platform and team. We also announced a proactive refinancing that meaningfully simplifies our capital structure and eliminates constraints, putting Groupon in a position to play offense. Our hyperlocal strategy continues to deliver strong results. Our North America enterprise brands had an exceptionally strong quarter with 26 brands generating over $1 million in quarterly billings, representing 53% year-over-year growth. North America Things To Do delivered strong double-digit growth for the sixth consecutive quarter, demonstrating market leadership during the crucial summer season, with particular strength in amusement parks, parks, water parks, and multi-attraction tour passes. On the leadership front, I'm excited to announce that effective September 1, Jiri Ponrt will assume the role of Chief Operating Officer, and Rana Kashyap will become our next Chief Financial Officer. Both have been instrumental in our transformation since joining in early 2023, and these changes reflect our commitment to developing leaders from within as we build toward our next chapter of growth. Looking ahead, we are raising our full year billings guidance from 3% to 5% to 7% to 9% growth, reflecting the strong momentum we are seeing across our business. We see multiple levers driving accelerating growth and remain confident we are building the foundation for sustained long-term value creation. We are still in the early innings of a large opportunity to build a hyperlocal experience marketplace that combines trust, curation, quality, and unbeatable value with the network effects and unit economics of modern marketplaces. I would like to thank our team for their dedication and hard work that have made this progress possible. This journey has not been easy, and their continued commitment to our mission and to our transformation has been truly great. With that, let's open the call for questions.

Our first question is from Sean McGowan from ROTH Capital Partners.

Can you hear me, okay?

Yes, we can.

You mentioned in your commentary yesterday that you are observing AI-generated traffic or searches. Could you provide more details on that? Do you believe you are acquiring additional traffic and business from it? What factors contribute to its increased value?

Thank you, Sean, for the question. Based on how we currently view it, we believe that the traffic coming from AI is more incremental. I really see AI traffic as a tailwind for us. We are spending a lot of resources on building the platform in a way that we are a great partner for AI-driven companies. I am a big believer that the traffic is moving and people are changing behavior, and they will be using AI more and more. I actually see Groupon positioned very well in this because we have a very unique offer, and we can be a gateway for many merchants to be part of this AI economy, as we call it. Yes, we are growing with pretty much zero base from last year because this is extremely developing. Overall, we see it as a positive trend with really very, very strong double-digit growth every month. At the same time, this is a new field, which is not always easy to measure, and there are no established standards in general. So we see on the market various numbers from different types of companies. I would like to emphasize that it’s still a small part of our traffic, but it's the type of traffic which we believe will grow significantly and will also impact overall Groupon performance.

Do I have a chance to ask another question at this point? Yes, okay. If you can talk a little more generally about the efforts that you've been making over the last couple of years to get merchants more engaged and to see more repeat business. Can you talk a little bit about progress there?

Yes. We have been discussing the merchant relationship and the way we are doing sales pretty much since I joined Groupon, and we have different views and different angles on how we are looking at it. In general, I consider Groupon to be an amazing platform for merchants because we are a performance-based platform. This means that we only get paid when merchants are getting paid, and this is very important when advertising on our platforms. Typically, you have to pay for traffic and then hope that you'll be able to optimize it. Our long-term positioning is very strong with merchants, and we are still in the process of transforming our sales force to be partners to merchants. We are now viewing Groupon not as a one-size-fits-all marketplace. Internally, we are discussing a triple-digit number of microcategories on Groupon. We want to understand each one, how the economy for merchants works, and then be their partners, helping them create campaigns that will make sense for both merchants and the marketplace. This applies across the board. We discussed very strong performance in the national enterprise segment. What I described works both with small businesses and large national enterprise partners. For large partners, discussions can even be easier and faster because they understand performance and how much they pay compared to other marketplaces. In the last 12 months, we made huge progress in understanding our platform. Now, with large partners, we can come to them and explain what the data shows about the incrementality of the business, the behavior, and how customers make decisions. This data is positive for how we present and show Groupon's value, helping us grow business with merchants.

Our next question comes from Bobby Brooks from Northland Capital.

And first, I just want to congratulate Rana on moving to the CFO role and Jiri taking over the COO role. So, kind of piggybacking on the AI question, it was really interesting to hear that the AI-powered search is showing strong signs of growth, albeit off a small base. But I have a 2-part question. First, of that notable growth you've seen so far, is that mostly just these AI search engines organically picking up your deals? Or have you made intentional enhancements to your listings to try to pick up this traffic? And then second, I just wanted to hear how you plan internally to further accelerate that traffic coming from this channel.

Internally, we are looking at AI together with SEO because, as you know, Google is significantly changing the behavior of the search result pages. We see pretty much steady performance in SEO, which is a great win because there are plenty of companies that are really facing headwinds right now with declining traffic. What we see is that we have declining traffic; however, people are spending a little more time in decision-making on Google and then coming to Groupon, which leads to a higher conversion. In the SEO part, which also partially includes AI through AI snippets, we are holding steady, which I consider great results. And then we see the part where people are starting their search in AI engines like Perplexity, OpenAI, and others. We are investing in our platform so that Groupon provides proper results for recommendations. I see this trend of moving people towards AI search as very strong. In the mid-term and long-term perspective, we are investing in our platform to ensure our platform is a good partner in this AI world. We plan to be part of the pilot program with OpenAI, enabling AI agents to book Groupon experiences and deals directly. This is the direction where AI is heading. Although it will take some time, I expect it will resemble an executive assistant for people who will be using voice to discuss plans with AI. E-commerce players who want to be important in this ecosystem need to support this to facilitate easy booking and finding relevant information. This is one of Groupon's internal focuses. I believe we are also very well positioned because of our unique inventory. Many companies offer commodity inventory that can be found elsewhere, but Groupon has unique deals typically unavailable online. This is a significant advantage for us in being a preferred partner for AI companies in specific segments.

Appreciate that detail. Just to confirm, it seems like the uptick in traffic you’ve seen so far is a mix of organic and enhancements to your platform?

I would say that in SEO, we can maintain our numbers because of our new platform, which is able to provide better results from Google. The part focusing on what you can get internally in ChatGPT and others is an additional technological development our platform can provide right now. This part is growing 50% month-over-month, although it starts from a very low base.

Got it. You talked about over 200 microcategories within the North American local segment where you feel you can execute your go-to-market strategy. Could you provide some context on that? For example, how many microcategories did you feel you successfully pursued within the second quarter that were reflected in second quarter results?

We are trying to improve across the board. However, it will be a long-term process. We mentioned that we are in the beginning in many areas, and if we do a deep dive, we have a category manager in some segments and genuinely understand the merchants’ interests. We have categories like airport parking and oil exchange, where we work closely to ensure proper supply. Thanks to the better platform we now have, we can customize the user interface to include features relevant for decision-making. For example, there are categories where images are not important at all when deciding on oil exchange. In contrast, other categories require consumers to know how the venue looks and how it feels. This allows us to go deeper with both merchants and consumers to customize the user experience. This process will never end and may lead to both fewer and more categories. We have several categories preselected and focused on them to prove the concept and achieve good results. However, we will likely need to improve each of them further through iterations.

Awesome. That's super helpful. Just one last question for me. With the refinancing you did intra-quarter, that allows you to step back into your buyback. I'm curious about when it might make sense for you to do so or what triggers you would look for to start repurchasing shares?

I look at this through the lenses of value creation. Our main responsibility is to grow value for our shareholders. I believe we are in a very good position, and we want to maintain an optimal and resilient balance sheet. Right now, I see two areas we’re focused on. First, as you mentioned, are share repurchases. We have an existing share buyback authorization in place, available for repurchases. While buybacks will always be an important consideration, we will deploy capital here only when it represents a highly attractive use of funds. The second part is M&A opportunities. During my career, I’ve led dozens of acquisitions and understand both the opportunity and risks associated with inorganic strategies. While we will remain open to strategically aligned acquisitions that enhance our market position and capabilities, we will do this with discipline to ensure they bring value. Share repurchases and M&A opportunities are both strategies we are looking into deeply, and we want to make the right decisions here.

Thank you, Bobby. It looks like we have a follow-up question from Sean.

I appreciate that. Any update on the progress you've made in kind of re-engaging the cohort that you felt like you lost late last year in the tech conversion?

My answer would be quite similar to what we answered last earning. We don't publish any specific numbers. However, based on the overall results of the company, you can see that we were able to achieve some meaningful improvements here. Overall, we are very happy with both the acquisition of new customers and the growth of new customers, but the cohort of existing customers is also performing well.

I will answer that. So first of all, the settlement is currently only a verbal agreement and is not binding. It has to go through various approvals from different statutory bodies in Italy. If it's approved, then yes, it means our troubles in Italy regarding these two tax cases from 2012 and 2017 are over. To your second question, we will consider reopening the business in Italy. Generally, we see that we are doing very well in international business, which was not the case a few quarters ago. So certainly, we will consider all options, including reopening Italy.

We will now move to written questions. A question for Dusan. You may have answered a bit of this already. Which initiatives are spurring the most growth?

I don't see it as one single initiative. Many people love this question, and I am answering it in the same way for the last two years. There are plenty of smaller initiatives that simply add up, and this is due to the complexity of Groupon and the number of verticals, which I discussed today in relation to microcategories that we need to tackle one by one. In the past, when the company tried to adopt a one-size-fits-all approach, it didn't seem right. However, I can simplify it into three parts that are crucial for each marketplace. On the demand side, we have a new mobile platform powering our traffic and marketing activities. This new platform and marketing engine behind it are significant enablers of our results. The marketing engine isn't just performance marketing but encompasses all channels. We have made substantial progress in marketing display, and we are growing not only through experiments but also through significant traffic from influencer marketing. We plan to run a small brand campaign in Q4 and Q1 next year. On the supply side, we are getting better and better at managing it. We are focusing on understanding the merchants that need to be on the platform, how the deals should look, and the value we provide as a company. This includes a microcategory approach to understanding profitable businesses. For the last year, we have dealt with multiple headwinds from our platform migrations, learning valuable lessons that we are now applying. This year, we are doing much better and focusing on mitigating impacts while ensuring our platform supports our operations efficiently.

It looks like we have a follow-up question from Bobby Brooks from Northland.

Just a quick one. I feel it might be helpful to remind the investment community of the dynamic between billings growth and revenue growth and how you see those two starting to converge here over the next few quarters. Could you just remind us on that dynamic?

Yes, Bobby. We are growing, especially in our local business, at a much faster pace than revenue. This gap is very similar to what we described in previous quarters. Roughly half of it relates to our take rate and redemption, which influences take rate. We observe that people enjoy our deals, and we aim to encourage redemption. Based on our data, if customers use and redeem our vouchers, it increases their lifetime value as they return to our platform to purchase new deals and become loyal customers. This is one aspect. The second part is the mix of take rates due to our increased enterprise deals, and you know we had an excellent 'Things to Do' season, which traditionally has lower take rates than health and beauty or other categories. These two contributing factors — higher redemption and a mix of categories and enterprise versus core local — explain the difference between our billings and revenues.

If there are no other questions, this concludes our call for today. Thank you, everyone, for joining. For additional information, please go to investor.groupon.com.