Analyzing Groupon in 3Q17: Strategy, Spending, Valuations PART 4 OF 6
Expenses decline 10%
In 3Q17, it cost less to keep Groupon (GRPN) in operation than in 3Q16. Its operating expenses were $635.7 million in 3Q17 compared with $711.4 million in 3Q16. That indicates that the company’s costs and expenses fell 10.1% YoY (year-over-year).
For Amazon (AMZN), eBay (EBAY), and Yelp (YELP), some of Groupon’s e-commerce and online advertising peers, operating expenses rose 35.2%, 5.9%, and 17% YoY, respectively, in 3Q17. Overstock.com (OSTK), another Groupon industry peer, recorded a 2.4% YoY decline in its operating expenses that quarter.
The chart above shows Groupon’s operating expenses trend. In recent quarters, it has focused on driving operational efficiency as part of its priority to maximize profitability, which it said might come at the expense of revenue growth. Groupon’s revenue declined 8% YoY in 3Q17 compared to more than a 10% decline YoY in expenses. The decline in expenses contributed to its net profit in 3Q17.
According to Groupon, its operational efficiency drive is through automation and streamlined organization.
Groupon and marketing expenses
Although Groupon largely reined in costs in 3Q17, there is one area—marketing—that it continued to spend more. Its marketing expenses were $101.5 million in 3Q17, an increase of 20% YoY.
The rise in its marketing budget in the latest quarter was due to a lot of offline campaigns on radio and television for its recently launched Groupon Plus (Groupon+) restaurant rewards program.