2016 Letter to Stockholders

In 2016, Groupon made some of its most significant strides as a public company as we continued to make progress on our path to becoming the daily habit in local commerce.

Local continues to be a vast opportunity. Connecting customers with millions of small businesses around the world — and helping build vibrant and growing communities in the process — continues to be our focus. Few others have the scale or ability to tackle this challenge, and no one has made as much progress in such a short time.

Since inception, Groupon has generated more than $13 billion with well over one million local businesses, and more than 50 million customers continue to trust Groupon to deliver incredible value on the things they do everyday and that make their neighborhoods great.

This is a mission that our more than 7,000 employees around the world take to heart and where we continue to do amazing work.

2016 was also a year of significant transition for Groupon.

Having built one of the largest marketplaces in ecommerce over the past eight years, our overall progress is clear. And, as exciting as that progress has been, I believe we still haven’t realized our full potential. We’ve often simply tried to tackle too many things in this vast space. It’s understandable: when you are pursuing an opportunity like local in real time with no tested blueprint, the potential for distraction is real and significant. Moving into 2016, it was clear that our business needed more focus.

When I took the role of CEO, I set out to bring focus to the business and team; to channel our collective energy and unleash it on four foundational things: streamline and simplify our business, grow customers, reduce empty calories and improve the overall customer experience. We believe these are the core elements to building a thriving business for the long term, and the team produced great results.

In short, we did exactly what we said we’d do. And we exited the year with double-digit North America local billings and — more importantly — gross profit growth.

Streamline and Simplify
Streamline and Simplify

Most significantly, we fundamentally changed how and where we do business. Over time, Groupon had sprawled and the business became increasingly complex. At the beginning of 2015, we operated in 47 countries. This effectively meant running more than 40 companies — companies with their own sales, customer service, finance, operations and editorial teams. Bottom line, we were fighting too many tough battles that weren’t critical to our long-term success.

Over the last 14 months, we challenged our teams to simplify our business and to ensure we were only working in markets where we were poised to win and where we believe there would be strong return on our long term investments. That meant big changes to our operations, as well as our geographic footprint.

After a year of tough decisions and significant restructuring work, our global footprint sits at 15 countries. These are the markets where we believe we can continue to grow great businesses and that will benefit most from our products, scale and expertise.

As we trimmed our global footprint, we also expanded regional and global shared service centers to more efficiently provide core operations and service support for consumers and merchants around the world. These shared service centers are another key way we’re further streamlining our operations and making the business simpler to run while delivering a more consistent experience for customers. It’s also a much more efficient operating model, which is visible in the strong trend of cost improvements we’ve delivered since undertaking these efforts.

We will continue to focus on this area going forward. Running a lean and tight business is now part of our DNA.

Grow Customers
Grow Customers

We also made outstanding progress in growing customers. Groupon has built an incredible brand — one consumers recognize and embrace. It is a tremendous asset. We are also operating in a massive and underserved market where customer scale is critical and where we already have a strong foundation. In 2016, we invested more than $360 million in marketing to truly capitalize on our brand and extend our customer advantage. Over the course of the year, we added more than five million new customers in North America — our most since 2012. In addition, we acquired LivingSocial — one of our original competitors in local — to give us a further way to connect with customers through another strong brand.

As an extension of these efforts, we also launched our first significant offline advertising campaign since 2011 to reacquaint customers with Groupon while demonstrating how the company has evolved from our daily deal roots. Combined with our traditionally strong computational marketing efforts, we were able to effectively and efficiently drive millions of profitable new customers to our marketplace and further bolster our brand.

Expect more great things on this front as we move forward.

Reduce Empty Calories
Reduce Empty Calories

Another key focus for 2016 was reducing empty calories — particularly in our Goods business. As we’ve increasingly focused on gross profit as the best indicator of the overall health of our marketplace, we needed to pay particular attention to our margins. While this is something we track for all our businesses, it is especially important in Goods. Over the past 5 years, our Goods business has been a powerful tool for customer engagement, activation and retention. However, Goods was also too reliant on low margin products that are good for revenue, but contribute little to the bottom line. We are focused on sustained gross profit growth and long-term customer value, and we believe we’re building our businesses to reflect that.

In 2016, we made solid progress ensuring that our Goods operation is a healthy part of Groupon. With improved margins, Goods helped us deliver 10% more incremental gross profit in North America year over year. Further, even as we’ve removed those empty calories, Goods continues to be a tremendous source of Local customer activation, with roughly 40% of Goods buyers also purchasing a Local deal.

As we enter 2017, we believe Goods is healthier, and we’re using it more strategically to fuel long-term marketplace growth.

Improve the Customer Experience
Improve the Customer Experience

Even with a strong brand, amazing local merchants and tens of millions of loyal buyers, the customer experience remains king. Your product has to deliver value, but it also needs to be easy and rewarding to use. Then you have to back it with excellent service and support.

During the course of the year we made real improvements in our customer service levels driving them to industry standards with plans for further gains. We continued to deliver category-leading customer satisfaction ratings and boast a Net Promoter Score of 72 that rates alongside the world’s best brands. This is an excellent foundation from which to build.

We also invested significantly in our mobile experience. Groupon is the top rated retail app in the United States according to Applause and the second most visited retail app in the country — behind only Amazon — according to Comscore. Our app has more than 145 million mobile downloads and more than 60 percent of our transactions occur on a mobile device. We are — and have been — a mobile-first company. It’s now clear that we’re also a leading mobile shopping destination.

At the end of the year we launched a dramatically improved app experience to build on our already-strong mobile history and deliver more of what consumers want. It is as much as 40 percent faster with vastly improved mapping and geolocation, filters, and browse features that make it even easier to find the perfect deal, wherever you are.

We also began attacking one of the biggest friction points at Groupon: voucher expiration. This has been a thorn in customers’ sides since Groupon’s inception. When vouchers expire, no one wins. Customers feel like they’ve lost out on a great deal. Merchants miss out on a new customer. Our new trade-in program allows customers to extend the expiration date of their deals or trade in a recently expired deal for a new one. We believe this is another key investment in a healthy marketplace.

These were all important improvements in the customer experience, but the reality is that our work here is never done. I expect even more gains here in 2017.

The year ahead
The year ahead

Our progress in 2016 is due to our focus. We set out four key priorities and spent the year relentlessly driving toward them. But there is still work to do. Winning in local isn’t a one year proposition. There’s a reason it is one of the last spaces to be disrupted. It takes time, resources and a great team with a true passion for helping consumers get the most out of their daily lives and for helping small businesses thrive.

Moving forward, we will use what worked for us in 2016 as a foundation for continued progress and refinement. In 2017, we will continue to focus on making the business simpler to run, on making Groupon easier for customers to use and merchants to work with, on continuing to increase our customer base and how frequently they engage with us.

We will make ease and elegance a key priority in our products as we build toward a truly voucherless future. That’s right: Groupon with no physical coupons. At the same time, we plan to make our platform even more powerful for merchants with flexible discounts and even market rate inventory alongside our traditional deals. The combination should mean a seamless and frictionless experience where nearly 50 million customers always find what they’re looking for.

Long term success
Long term success

I’m often asked what long-term success looks like for Groupon. Ultimately, I see success as a world full of amazing neighborhoods built on amazing merchants — vibrant places where people eat, shop and — most importantly — connect. How do we do that? First, we have to ensure Groupon remains a great place to work with amazing people helping us tackle this incredible opportunity. We then need to remain focused on delivering against our strategy, which is helping us move step-by-step to being a daily habit for customers and an indispensable asset for businesses.

When we do all that, we’ll also have built a great company. I feel incredibly fortunate to be able to share this incredible journey with all of you, our valued stockholders, customers and employees.

We are as excited to play a part in that as we were eight years ago and excited to be even further along the path.

This letter contains forward looking statements. Groupon’s 2016 Annual Report includes a message on the use of forward looking statements and is available at http://investor.groupon.com/annuals-proxies.cfm.