Groupon Earnings Call Insights: Marketing Leverage and New Subscribers

On Monday, Groupon Inc (NASDAQ:GRPN) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Marketing Leverage

Ralph Schackart – William Blair: I was wondering if you could provide some more color on the marketing leverage that you had in the quarter in terms of efficiencies, I think you added about 1 million plus more customers than we (indiscernible) model was a 25 decrease in the spend. Was there primarily a shift from customer marketing away from subscriber acquisitions, just hoping for some more color on that?

Andrew Mason – CEO: We’ve continued to gain marketing leverage as a result of investments in technology and deeper analytics to better understand how to efficiently deploy our marketing spend. Some of the results have come from a shift towards transactional marketing, but it’s still the early days there and we think there is a lot of headroom remaining.

A Closer Look: Groupon Earnings Cheat Sheet>>

Ralph Schackart – William Blair: One more Andrew if I could. What was driving the strong revenue acceleration North America in the quarter, it was up I think 33% sequentially. I think you talked about the tech innovation such as personalization was up a sole factor, maybe you could give a little more color on that as well?

Andrew Mason – CEO: So, the performance we saw on North America was partly due to technology, but it was also due to increases in deal density that we saw through operational efforts. Proximity of deals is the number one driver of purchase behavior by customers. So, by getting more dense deals, we were able to use our technology in order to provide better targeting to customers, give them deals that were more relevant to them and thus deliver performance improvements. These are all, I should mention, improvements that are at this point limited to North America where our technology platform has this technology. We are now in the process of rolling it out globally and expect to see some results from personalization in the quarters to come globally.

New Subscribers

Ross Sandler – RBC Capital Markets: Just got two questions. Andrew, first, you are experimenting with the onboarding task for new subscribers in certain markets. Can you talk about how that might be helping your ability to target user preferences and is this having a positive impact on Groupon (NASDAQ:GRPN) per customer? And then second question for Jason, you mentioned new hires for the finance team how do you feel overall about the financial controls today. Can you tell what’s going on in the business in real time and what else needs to happen from here to remove that material weakness clause in the 10-K by year end?

Andrew Mason – CEO: So, we are constantly experimenting with our onboarding process for new subscribers. The effect of that is not only do we drive down our cost of acquiring a new subscriber but we also more effectively collect information about the subscriber doing the onboarding process whether it is gender or location or preferences. We can then use that information to better target deals and increase the percentage of subscribers that are likely to convert into customers and these are all the driver – the types of experiments that we are doing that have resulted in several subsequent quarters of steady paid customer growth while reducing our overall marketing spend.

Jason Child – CFO: So, on the question of controls, I guess, the material weakness kind of go back to what we disclosed on March 30th. So, the material weakness was in particular related to the financial statement close processes. So there’s some kind of very specific tasks that we’ve implemented and some that we’re still going to implement. So in particular, as you mentioned, there is a number of people. We’ve certainly added some, we have still some more work to do there. We do – I think as you know, we’re in 48 countries, and so we do have accounting personnel and controllers in every single country and they certainly work. We’re continuing to take on in terms of just kind of ramping up resource there. Also in terms of process, there’s a number of procedures that we’ve actually already implemented. The most specific would be on refunds. Last quarter we did change our refund methodology to get much more granular into using actually a statistical model that is actually now mapping on really a weekly basis to exactly what’s going on in the business. So, from a process standpoint, we’re in very good shape. There is some technology that we’re implementing that is especially helpful with a large company like ours where you have to really try to get a good eye into reconciliations and try to be able to look at the status and where all 48 countries are when you’re going through a relatively tight close process. So, the answer would be, I would say, in terms of when we’ll be remediated, we made a lot of progress this quarter, we’ll probably make a lot of progress next quarter, and hopefully within the next quarter or two, we would have done all the steps necessary. However, as you stated, this is a – material weakness is something that is not reviewed by the auditors until the year-end. So, the actual removal of that label, the material weakness will not disappear until we get to the year-end audit. But we feel very, very good about the progress that we’ve made thus far.