Groupon's Q3 2025 Earnings Call: Contradictions in AI Traffic Growth, Italian Tax Settlement, Platform Stability, and Merchant Strategy

Guidance:

• Target: accelerate toward over 20% billings growth while generating strong adjusted EBITDA and free cash flow.
• Full North America app cutover planned by early Q1 2026; ramp distribution in Q4.
• Brand campaign launching in ~two weeks; will reallocate between performance and brand based on observed ROI.
• CDP/CRM pilot live in U.K.; expanding to North America to enable personalization and lift repurchase rates.
• Buybacks will be opportunistic; evaluated vs cash, investment priorities, market conditions, and share price.
• Italian tax settlement: seeking judicial approval in December; remaining exposure ~ $15M.

Business Commentary:

• Revenue Growth and Market Performance:
  
• Groupon reported global billings growth of 11% year-over-year in Q3 2025, marking the second consecutive quarter of double-digit growth.

• This growth was driven by the core local category, with North America local up 18% and international local excluding Giftcloud up 15% year-over-year.

• Adjusted EBITDA and Free Cash Flow:

• The company delivered adjusted EBITDA of $18 million, exceeding expectations, and achieved a trailing 12 months free cash flow of $60 million.

• Improved profitability and cash flow are attributed to strategic investments and operational efficiencies.

• Customer Growth and Engagement:

• Groupon added nearly 300K net new active customers quarter over quarter and over 1 million over the last four quarters, excluding Italy.

• The increase in customer growth is due to systematic improvements in the marketing engine and increased marketing spend with improving ROI.

• Travel and Local Category Performance:

• The travel business showed improvement, with successful partnerships driving growth in room nights and better deals offered.
• The core local category continues to be the primary growth driver, with things to do experiencing exceptional summer seasons with strong double-digit growth.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "pleased to report another strong quarter"; global billings grew 11% year over year; core local billings up 18% (North America local +18%); adjusted EBITDA of $18 million ahead of expectations; trailing 12 months free cash flow reached $60 million. CEO emphasized momentum in customer growth, category performance, and platform capability.

Q&A:

• Question from Bobby Brooks (Northland Capital Markets): You noted Chicago is growing nearly double the rate of North America local after reallocating sales resources — when did that start and what did the focused sales resources do?
  Response: Reallocated higher share of sales resources starting ~four quarters ago; focused, prescriptive marketplace playbook (deal books, inventory understanding) drove outsized Chicago growth and will be rolled out to other metros.

• Question from Bobby Brooks (Northland Capital Markets): How will Groupon provide different customer journeys (e.g., waterpark vs. oil change)?
  Response: Adopt category-specific product tests and features plus a CDP/CRM pilot to enable personalized messaging so experiences and UI are tailored by category and individual behavior.

• Question from Eric Sheridan (Goldman Sachs): What initiatives are improving purchase frequency among newer cohorts, and how will you balance direct response vs. brand marketing over the next 12–18 months?
  Response: Primary lever is CDP/CRM (UK pilot, expanding to NA) to enable targeted, timed outreach to improve repurchase; brand (influencers, video/YouTube) will be piloted and budgets shifted between performance and brand based on ROI data.

• Question from Bobby Brooks (Northland Capital Markets): What factors will you consider for opportunistic buybacks and how should we model timing/size?
  Response: Buybacks will be opportunistic; decisions will weigh cash generation, investment priorities, market conditions and our stock's trading price.

• Question from Sean McGowan (Roth Capital Partners): What impact do expiration/reminder/redemption campaigns have on repurchase behavior?
  Response: Redemption strongly correlates to higher second-purchase rates, but measurement is limited by missing redemption signals from some merchants; improving redemption tracking is a priority.

• Question from Written Investor (Investor Relations): Marketing spend rose 14% to 37% of gross profit — how are you measuring ROI across channels and early learnings from brand campaigns in NY and Chicago?
  Response: Paid channels are meeting ROI targets (100% return within a seven-day window); brand campaign starts soon and mix will be adjusted based on observed ROI; SEO traffic is a headwind but conversion is improving and AI offers additional opportunities.

• Question from Written Investor (Investor Relations): New app ~3% of traffic with full NA cutover by early Q1 2026 — what KPIs indicate readiness and what uplifts have early adopters shown?
  Response: New mobile app users show 10–20% higher engagement though monetization remains on par; recent app performance improvements justify accelerated rollout and broader distribution in Q4 ahead of early Q1 2026 cutover.

• Question from Written Investor (Investor Relations): Update on the Italian tax settlement?
  Response: Progressing: proposed settlement approvals obtained, awaiting revised assessment reflecting agreement; targeting judicial approval in December; remaining potential payment approximately $15 million.

Contradiction Point 1

AI Traffic Growth and Strategic Importance

It involves differing perspectives on the growth and strategic importance of AI-generated traffic, which directly impacts the company's digital marketing and traffic acquisition strategies.

Are newer cohorts purchasing more frequently than older cohorts? - Bobby Brooks (Northland Capital Markets)

2025Q3: We see improvements in the repurchase rate of new cohorts compared to the same cohorts from last year. This indicates that our initiatives are working, and improving technology will drive overall repurchase rates. - Dusan Senkypl(CEO)

You mentioned AI-generated traffic or searches. Can you elaborate on that? - Sean McGowan (ROTH Capital Partners)

2025Q2: We believe AI traffic is incremental and a tailwind for Groupon. We're investing in being a great partner for AI-driven companies, as traffic is shifting towards AI. This traffic has strong double-digit growth every month, but it's still a small part of our overall traffic. - Dusan Senkypl(CEO)

Contradiction Point 2

Italian Tax Settlement and Market Re-entry

It involves differing statements regarding the resolution of the Italian tax settlement and the potential re-entry into the Italian market, which impacts the company's international growth strategy.

Can you give an update on the Italian tax settlement? - Bobby Brooks (Northland Capital Markets)

2025Q3: We are making progress with the Italian tax settlement. Our Italian entity has received approvals for the proposed settlement, and we are awaiting a revised assessment. - Rana Kashyap(CFO)

Does this settlement with Italy put a final end to the whole thing? - Jiri Ponrt (CFO)

2025Q2: The verbal agreement is subject to approvals. If approved, it ends tax cases from 2012 and 2017 in Italy. - Jiri Ponrt(CFO)

Contradiction Point 3

Conversions and Platform Stability

It involves statements regarding the improvement in platform stability and its impact on conversions, which are crucial for understanding Groupon's operational and customer engagement strategies.

Were Chicago local billings growing in the high 30s? Can you elaborate on the focus of sales resources and actions taken? - Bobby Brooks (Northland Capital Markets)

2025Q3: Our Chicago effort began last year, reallocating a larger share of sales resources to Chicago. We developed a marketplace understanding and deal books, focusing on inventory and customer behavior. This strategy led to strong results, which are visible in Chicago's growth. - Dusan Senkypl(CEO)

Did you recover any of the lost loyal customers? - Sean McGowan (ROTH Capital)

2024Q4: Improvement in platform stability helped recover some lost customer cohorts. The team focused on addressing individual customer issues, leading to higher conversions and better overall platform performance. - Dusan Senkypl(CEO)

Contradiction Point 4

AI Integration and Search Functionality

It involves differing statements about the integration and functionality of AI in Groupon's search capabilities, which is important for understanding their technological advancements and customer experience enhancements.

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2025Q3: We are working on an updated Search and Relevance platform with AI-driven search, which will enhance personalization. Our website is also being optimized to be compatible with AI platforms, ensuring easy integration of our results in AI searches. - Dusan Senkypl(CEO)

What drove the double-digit growth in the top five North American metro areas in Q4? - Bobby Brooks (Northland Capital)

2024Q4: The growth in top five metro areas resulted from a strategy shift focusing on curating deals and building market management capabilities. The approach is scalable and being optimized for larger markets before expansion to other locations. - Dusan Senkypl(CEO)

Contradiction Point 5

Merchant Growth and Strategy

It involves the growth strategy and focus areas for Groupon's merchant partnerships, which are critical for revenue generation and overall performance.

Are newer cohorts showing higher purchase frequency than older cohorts? - Bobby Brooks (Northland Capital Markets)

2025Q3: We see improvements in the repurchase rate of new cohorts compared to the same cohorts from last year. This indicates that our initiatives are working, and improving technology will drive overall repurchase rates. - Dusan Senkypl(CEO)

What is driving the 43% year-over-year increase in North American merchants generating over $1 million in billings? - Bobby Brooks (Northland Capital)

2025Q1: Over the last 18 months, Groupon has improved its hyper-local approach, focusing on inventory and deal quality. This has led to better partnerships with both enterprise clients and local merchants. The current macro environment has also been favorable. - Dusan Senkypl(CEO)