Dear Stockholders —
In 2017, Groupon made important strides toward becoming a preeminent global marketplace for small businesses and a daily habit for consumers. In the process, we continued to build our voucherless future — which we see as an important innovation for customers and merchants alike — while investing in the core strengths that have made Groupon a force for business development and growth in thousands of communities around the world. We also delivered strong performance for stockholders over the course of the year.
We did this by delivering on the key priorities that we believe will drive the biggest impact for Groupon customers, merchants, stockholders and employees: enhancing the customer experience, establishing Groupon as an open platform that takes advantage of our scale, unlocking the potential in our international business and maintaining our culture of operational efficiency.
These priorities — coupled with another year of focused performance from the Groupon team, now 6,700 strong across 15 countries — helped us achieve core strategic objectives and solid financial results in 2017, including our first-ever full year of GAAP profitability. As exciting as that is for our team, we expect that the most exciting aspects of our performance from 2017 will play out over many more years to come.
Local is an immense opportunity, one that only continues to grow as more small businesses seek to take advantage of the power offered by huge platforms to significantly grow income and impact. In this regard, Groupon has few peers. And yet Local remains in the early stages in terms of its migration online and towards increasingly connected commerce. Make no mistake however, that migration is underway, and we’re pushing hard to accelerate it.
The needs and desires here are clear and simple. Merchants want profitable customer relationships (and more of them), and they want help competing in the new world that seems determined to put them out of business. Consumers want online and mobile convenience and service when they’re shopping locally, and they want an easier way to discover and buy amazing things around them. In other words, consumers want to buy from small businesses, but they want small businesses to be able to play a level game with the biggest and best companies in the world in terms of service and convenience.
Our goal in 2018 is to accelerate delivering on the needs and desires of merchants and consumers in Local commerce. To extend the advantage we’ve built over the last nine years, we plan to continue making transformational tools for small businesses and delivering an amazing array of local deals, experiences and goods for customers. We believe we’re well positioned to deliver: we’re running leaner and more efficiently than ever; we’re launching products that delight merchants and consumers alike, and we’re executing well across the business. Our last year demonstrated that focus, execution and a great team can continue to deliver excellent results while helping customers save and small businesses succeed, building vibrant neighborhoods in the process. We expect that to continue. Customer Experience As Groupon has evolved, it became clear that our product should evolve to match the changing expectations of consumers and merchants. In short, we’re making the process of using a Groupon frictionless — rewarding even — by removing the voucher from the equation and offering key convenience features like booking. Most important, the entire experience should take advantage of our best-in-class mobile app and be supported by a great customer service team.
Groupon+ is the tip of the spear for our customer experience efforts, and, while it is still early days, we clearly see the potential of frictionless experiences on our platform. Groupon+ completely removes the voucher from the equation by linking discounts to the customer’s credit card. People pay as they usually do and seamlessly save on their purchases. For merchants, it’s similarly simple, requiring no training of staff, allowing them to offer a much wider range of discounts and encouraging customers to return again and again.
This is the first major product we’ve launched that has shown the potential to significantly change purchase frequency. Customers who use Groupon+ are more engaged, which means more savings for customers and more business for our merchants. It will be some time before Groupon+ makes up a material part of our business, but it’s showing how removing friction benefits both sides of our marketplace.
Arguably, the most exciting part of Groupon+ is the platform on which it’s built — a platform which seamlessly connects offers with a customer and payment instrument in real time, at scale, and which can power more products over time. As the first product built on this platform, Groupon+ is off to a great start.
Importantly, Groupon+ — as an anytime, anywhere product — is built for mobile, which is another core focus area for our customer experience efforts. Continuing to evolve our app to meet the demands of our changing marketplace is increasingly important as more and more customers show up with higher intent and find more and more inventory. Further, we expect our mobile efforts to be even more impactful using our proprietary data, machine learning and AI to improve relevance, discovery and service on our platform.
Booking is another key part of improving the customer experience. It also lends itself to an increasingly mobile world. In 2017, we helped millions of customers make reservations and appointments through our beauty booking experience, our International restaurant reservations offering, and third party booking integrations.
We’ve seen that when customers can purchase and book simultaneously, we can increase customer satisfaction while driving even more traffic to merchants. Our opportunity now is to further scale bookability on the platform in 2018, both by expanding our proprietary tools, and via third party integrations, where Groupon’s unique combination of local customer transaction scale and brand trust create compelling partnership opportunities. Our focus on the customer experience is now a part of Groupon’s DNA. It’s something we begin and end with, believing that when it’s simple and rewarding to use Groupon, we will attract more customers and make them users for life.
In 2017 we also made great strides in establishing Groupon as a true platform. Groupon is already the largest local marketplace of its kind where we operate, and more and more potential partners are realizing the opportunity that nearly 50 million ready-to-buy customers represents. Solidifying our position as a platform requires opening Groupon to more high-quality third parties, as well as distributing our offers to customers through other great partners. We intend to drive forward on both of these fronts in 2018.
In terms of partnerships, Live Nation, Expedia, Viator, Goldstar and FanXchange are now active parts of our marketplace. Our GrubHub integration will bring tens of thousands of new food delivery offers to Groupon. We’ve also recently completed a partnership with ParkWhiz and signed an agreement with American Express as a network partner for Groupon+, giving us the three largest payment networks in North America along with Visa and MasterCard. These are great companies with great, national brands. Their presence on our platform should be proof positive that the Groupon marketplace is a compelling destination. We see no shortage of potential partners and expect to bring more great relationships to customers as we move through the year.
In terms of distribution, we believe our offers can enhance the value propositions of other established programs. We’ve worked closely with distributors like Button and OnStar, and we’ve launched an airlines reward program that helps users earn airline miles and hotel points for shopping on Groupon. We expect more of these types of relationships to launch over the course of the year and further expand our platform reach.
This two-way flow of deals and customers creates real benefits for our marketplace by maximizing the transactional power of our platform and placing our deals on other high-traffic destinations to bring more people to Groupon.
Over the last few years, we’ve worked hard to reposition our International business for success and believe continuing to unlock the potential in International is a significant growth opportunity. To put the opportunity into context, our International markets today make up about half of our North America gross profit yet those markets are about twice as large as North America in terms of addressable population while representing similar buying power and mobile adoption.
To help unlock our international opportunity, we’ll maintain focus on our proven product, marketing and supply strategies that we’ve honed in North America. On the product side, we plan to focus on mobile by improving the overall usability of the app with a better checkout experience, a shopping cart and other winning features. For supply, we’ll remain focused on growing local merchant relationships in the largest cities, as well as pursuing more high quality national and third-party offers. We also intend to expand our coupons business internationally, which builds on the investments we’ve made in North America, while bringing another highvalue, everyday offering to our international customers.
Given the progress of the International business, we also believe it’s time to expand our International marketing programs. In 2018 we expect to step up our overall investment in targeted cities and mirror North America’s successful offline strategy. We plan to continue to invest in the same 12- to 18-month payback window, and believe our enhanced analytics will bring even more rigor to our marketing programs.
One of the core challenges to operating a global marketplace at scale is doing it efficiently. As Groupon has transitioned from hyper growth to profitable growth, we’ve devoted considerable energy to ensuring our operations are lean, effective and provide leverage to invest in the future of the business while continuing to thrill customers and merchants. Over the last year, we continued to expand our Shared Service Centers and Engineering Development Centers to better realize the advantages inherent in being a global company with the ability to tap into a diverse and broad talent pool to help us build amazing products and provide great support to our customers and merchants around the world.
We’ve also made significant strides in our general operations, becoming more efficient in our sales processes, our customer and merchant support and our overall staffing. Now, more than ever, we are a lean and effective organization while still delivering — and improving upon — the experience our customers have come to expect from Groupon.
The Road Ahead
These four strategic areas continue to be our focus in 2018. We have real work to do on all fronts, but we’re on a solid track, and we’re working off a more efficient and sustainable cost structure. The opportunity in front of us is clear, and we’re incredibly excited to attack it over the coming years.
As we move deeper into 2018, we are energized and excited by the opportunities ahead. Our focus on the customer remains a true North Star, and we continue to make great progress toward a frictionless, voucherless experience. Our platform is growing, and we’re adding capabilities and merchants to it every day. Our international business is beginning to show it’s long-term potential. And, we’ve never been more operationally efficient.
When all of these things work in concert, we should begin realizing the power of the platform we’ve created and what we believe can be significant customer and stockholder value that cements Groupon at the forefront of local commerce.
I’d like to thank the Groupon team for a strong 2017, and for their continued passion to do amazing things for our customers, merchants and stockholders. That energy and drive is at the core of our current and future success, and I’m excited about what we’ll accomplish together.
This letter contains forward looking statements. Groupon’s 2017 Annual Report includes a message on the use of forward looking statements and is available at http://investor.groupon.com/financial-information/annual-reports.