Groupon (NASDAQ:GRPN) Q3 2026 Earnings Call

0:00 Hello, and welcome to Groupon's third quarter 2026 Financial Results Conference Call. On the call today are Chief Executive Officer Dusan Senkypl and Chief Financial Officer Rana Kashyap. At this time, all participants are in a listen-only mode. Today's call will be a question-and-answer session only. The company has posted earnings materials, including the shareholder letter, on the company's investor relations website at investor.groupon.com. Today's conference call is being recorded. Before we begin, Groupon would like to remind listeners that the following discussion and responses to your questions reflect management's views as of today, November 10, 2026 only, and will include forward-looking statements. Actual results may differ materially from those expressed or implied in the company's forward-looking statements. Groupon undertakes no obligation to update these forward-looking statements as a result of new information or future events.

0:54 Additional information about risks and other factors that could potentially impact the company's financial results are included in its earnings press release and in its filings with the SEC, including its quarterly report on Form 10-Q. We encourage investors to use Groupon's investor relations website at investor.groupon.com as a way of easily finding information about the company. Groupon promptly makes available on this website the reports that the company files or furnishes with the SEC and Corporate Governance Information, and select press releases and social media postings. On the call today, the company will also discuss the following non-GAAP financial measures, adjusted EBITDA and free cash flow. In Groupon's press release and their filings with the SEC, each of which is posted on its investor relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. And with that, I would like to turn it to Dusan to make a few opening remarks before we jump into Q&A.

1:58 Hello, and thanks for joining us for our first Walker 2026 earnings call. It's great to be with all of you today. Yesterday, after the market closed, we released our earnings and posted our shareholder letter on our industry relations website. Today, I will make opening remarks and then open up the call for your questions. For more details on our quarterly performance, I encourage you to read our full-shrouded letter, press release, and 10-2. We believe the best things in life happen offline. As the world becomes increasingly digitized, we believe demand will grow for analog, in-person experiences and for the digital pathways consumers use to identify, discover, and book those experiences.

2:45 Groupon sits at that intersection of consumer intent and local supply, a natural bridge between the AI economy and the millions of local merchants who power Main Street. During Q3, we continue to reshape how Groupon operates, strengthening our operating leadership with the addition of our new Chief Operating Officer, relaunching LivingSocial as an agent-first experience marketplace, and Advancing Project Foundry through the introduction of Foundry AI, our company-wide AI platform. Financially, we had an uneven quarter. We reported solid billing growth, increasing 6% year-over-year to $439 million, near the top end of our guidance range. And revenue grew 2% to $125 million and adjusted EBITDA was $15 million, both below our guidance.

3:40 Free cash flow was negative 46 million, reflecting our seasonal cash flow point. Billings growth was led by things to do, travel, and international local, while North America local supply outside things to do remains an area of focus. Billings growth was held back 180 basis points by our trust and quality investments, which included honoring more customer refund requests. Revenue grew slower than billings, driven by a mixed shift towards things to do and travel, our trust and quality investments, and other factors. Adjusted EBITDA fell short because of the revenue shortfall along with higher marketing spend that did not earn the return we expected.

4:25 Our priority is marketplace that feeds itself. Better quality deals bring more customers, and more customers bring more merchant partners. We are investing in three things to get there. Better supply, a trusted experience, and more reasons to come back in one integrated marketplace under our chief operating officer. Things to do and travel are already showing that we can get the flywheel working. Things to do grew double digits in both North America and international, its sixth double-digit quarter in the last eight, helped by direct connections into our partners' booking systems, and Travel Billings grew 36%. In North America, core local, supply outside things to do fell short of our expectations and rebuilding is a priority for us. We expect the effects of that rebuild to begin showing in our results in 2027.

5:23 Project Foundry, our project to redesign how Groupon works as an AI-native company, continues to drive meaningful change throughout our organization. We launched Foundry AI, our company-wide AI platform, designed to centralize our data, share skills, and let teams share AI capabilities across the organization. Foundry AI has been a key enabler for us to speed up projects. The majority of our employees have moved on to it, and by the end of 2026 we expect it to be the default way our teams get work done. The results are starting to show. AI results 84% of our customer support contacts on its own in Q3, up from 42% in January, and crossed 90% in early November.

6:12 Engineering output per developer more than doubled in the first half of the year and our revenue per employee is up approximately 50% year over year. Doubling is not where I want to stop. I have also taken on the role of interim CTO because I believe the biggest gains from AI come when the person setting the strategy is close to how the world actually gets built. From there, I see room for another step change in the pace and quality of our delivery and in how much we can do the class. Personal AI agents are emerging as a new type of customer with the potential to revire how consumers discover, compare, and purchase local experiences. In response, we relaunched LivingSocial as an agent-first experience marketplace and our agentic commerce lab. More than 50,000 Groupon local experiences are available through LivingSocial, and for more than 25,000 of them an agent can now reserve a specific date and time with the customer completing the purchase on Groupon's checkout.

7:16 For Groupon, it opens a new channel. For our merchant partners, it answers a question we hear more and more. How do I show up when an agent, not a person, is doing the search? Our merchant partners are busy running their venues. They don't have the time or team to rebuild their systems for AI, and that is exactly the work our marketplace should do for them. It's early days, and we don't expect a material impact on our Q4 results, but we believe agentic commerce may become a meaningful change for local experiences over time. Turning to trust and quality. At the center of every successful marketplace I have been involved in is trust. We introduced trust and quality last quarter to build a curated experience marketplace where every deal earns its price and no one has to second-guess a purchase.

8:09 In Q3, we made Groupon much easier to reach and more customer-friendly when something goes wrong. Being easier to reach and more flexible came at a higher near-term cost than we expected. We honored more customer refund requests. and refunds grew double digits year over year with forward reported billions by 180 basic points. Majority of the increase in refunds came through Groupon Vox, increasing our currency and loyalty on our platform. Our trust and quality team is also raising baseline quality standards on our marketplace with the power to pause merchants with low quality scores. We expect these investments to drive an increase in purchase frequency and customer retention over time.

8:56 We want Groupon to be a habit and the opportunity in our customer base is clear. Turning more first purchases into a second and a third. Our most loyal customers purchase an average of five times a year. One more purchase from each of our one-time customers would drive a meaningful improvement in our supply. In Q3, we brought our new app, website, and managed channels together in one customer lifecycle, now live in every geography, so the messages customers receive and what they see in the app work together from the first push or email through to purchase. We made less progress here than we expected and have not yet seen the gains in purchase frequency. In Q4, we expect to bring more first-time customers into the app, with app-only deals and easier ways to move from web to app, and to launch a personalized profile page with rewards built around each customer's own purchases.

9:53 Our goal is to improve the second purchase rate. We are also raising the bar on talent. Alongside Aditya Rajkumar, our COO, Jake Stewart joined as the Chief Business Officer and Mark Marsh as Head of Marketplace Strategy and Operations. And yesterday, he announced the appointment of AJ Mittal to our Board of Directors. Together, they bring experience scaling successful marketplaces to both our management team and our board. On capital allocation, we ended Q3 with $177 million in cash and cash equivalents. Since our last earnings release, we have repurchased 677,561 shares for $11.3 million, which takes our repurchases in 2026 to approximately 3.5 million shares for $43 million.

10:50 or 8.5% of the shares outstanding at the start of the year. We will provide 2027 guidance with our fourth quarter results. Our focus for driving billings and contribution profit growth is clear. Better supply, a trusted experience, more reasons to come back and operating AI natives. Over the long term, we remain confident in the marketplace opportunity in experienced marketplaces A larger category is the fragmented local supply and in the fails from becoming AI natives. I want to thank every Groupon employee for their work this quarter and our shareholders for their continued support. With that, let's open the call for questions.

11:37 Our first question comes from Sean McGowan from Roth Capital. Sean, you can unmute your line now.

11:44 Thank you. Yeah, I'd like to focus on the marketing spending disappointment there, that it didn't meet your expectations. So can you talk a little bit about what your plans are, A, to do something differently, or what the magnitude, you know, will you be spending at the same level and hoping to get a better return, or will you be dialing back the spending, or just what are you going to be doing differently? Thanks.

12:10 So, Sean, thank you for the question. On the last earning call, we were talking about shifts in marketing to focus on the long-term purchase frequency, which meant very meaningful rebuild of how we run our marketing in order to run marketplace We need to be able to evaluate for pretty much every metro and every category what is the cost of marketing and we were adjusting the whole playbook for marketing to work in this environment. During Q3, we were not overall happy with the results. We did meaningful progress and we continue in the strategy to purchase customers who have higher purchase frequency.

12:56 In other words, I can explain it that in the past Groupon was looking just on the 7-day return of the customers we are purchasing through paid marketing. Now we are putting into equation also the 12-month behavior of these customers and we reallocate more marketing spend towards the customers where we see higher probability that they will have simply more purchases in coming 12 months versus 7 months. As I said, we are not completely happy with the results. However, we consider this a key trend and something which we need to optimize and find the right formula right now for Q4. We are running it with a little bit lower ROI targets or a little bit better return, in other words, and we expect that we will see better results during the quarter.

13:50 Okay, thanks. And another spending question I had was that SG&A came in quite a bit lower than I had expected. How sustainable is this rate for cash SG&A?

14:04 I can take that, Sean. Thanks for the question. So I would say that we are expecting SG&A to come down. The current rate, just to think about what helped Q3 and SG&A, is we did have Some pickups on, you know, given our outlook on the business, lower bonus payouts. So that is not going to be reoccurring. I would think that when you look at what we see in Q4, that will be a more indicative rate of what we expect. As we announced earlier this year, we have been working through a restructuring plan that and at this stage we've realized about on a run rate basis looking at where we are in October we realize about 70% of those savings but some of the rest of that is still going to come in Q1 and we continue to look at ways of reducing our costs so Q3 does have some one time benefits but I would say that you will get to a more normalized level in Q4 and we expect that level to continue to Thank you for joining us.

15:41 Both questions, yes, are correct.

15:43 Okay. Thank you very much. I'll get back in the queue. Thank you, Sean. Our next question comes from Bobby Brooks from Northland Capital. Bobby, you can now unmute your line.

15:53 Hey, good morning, team, and thank you for taking my question. On the trust and quality investments, I can appreciate how important this is to the long-term health of the marketplace. What I was curious on with the 180 basis point had went on billings growth from refunds. Were those refunds sort of concentrated around certain merchants that then subsequently led to the pausing of those concentrated merchants or were the refunds more broad? And if so, maybe just speak to the number of merchants that were paused in the quarter.

16:25 Thanks for the question, Bobby. I can take it. The decision on trust and quality is... Our own decision which we made based on our belief that the marketplace main benefit towards the customers is or one of the goals of the marketplace is to be trusted place where they can do their purchases. In the past Groupon was focusing Quite a lot to maintain merchant partners on the website and not always both able and not always wanted to clean up the marketplace. On the last earning call, I was talking about our capability where AI is going through every single communication our customers have with Groupon or with merchants if it goes through Groupon and we have much better visibility.

17:22 I would not be sharing the exact numbers about the concentrations or the number of deals post but what we did last quarter was that when we see that we are unable to find a resolution which works well for the customers with the merchant partner we just decide to take the deal out of Groupon. and it's actually distributed across all merchant profiles. Sometimes we have technical limitations that merchant is not able to integrate better and we may work with them for a longer time to improve the quality of service. Sometimes we were able to identify deals which were almost, I would say, fraudulent or which were not in the best interest of the customers. However, on the other hand, With all the AI technology, or not on the other hand, but with all the technology and AI, we made another decision in this direction, and that's visibility of the customer support.

18:21 Because when I joined Groupon, to reach customer support, you have to go two or three levels deep in the menu of support to find it. Nowadays, we feel confident about what we are providing. We are confident about the service. and the customer support is reachable and very visible pretty much everywhere on Groupon's surface. And I was mentioning the majority of the increase was coming through Groupon Bucks, so down the road we expect that these Groupon Bucks will be coming back as new purchases on Groupon. And for us, for the internal team inside, this is actually very empowering and huge motivation, because we really fight on behalf of customers to improve the service, make us more proud about what Groupon offers.

19:11 That's really helpful. And then just on the, I can get, not wanting to disclose the number, exact number of deals paused and stuff, but do you feel like as we're, you know, a month into, a month and a half into the fourth quarter, do you feel, has that rate of, has the rate of refunds, So we expect that this will be a process which will take a while to optimize.

19:55 Obviously, the majority of deals were caught in the first wave, but there is ongoing work with merchants on improvement. On the other side, I would mention that we already see improvements. So, for example, when you go to Trustpilot, which is the largest website with reviews, there is a significant change in the trend on Groupon. Because in the past, we had amazing reviews between 4.6 and 4.7 when customers had experience with our merchants. and are coming back to Groupon. But when you were going outside of Groupon, there were reviews that it's very hard to reach support or just to get refund even when the refund was deserved. Here, we already see a change of the trend in last few months. It's much more positive comments from customers versus what we saw in the past.

20:48 And, Bobby, I just want to add one thing. You were asking about concentration. There is a vertical dimension to this. And so if you look at Thank you very much. and then some of our other products around automotive services and retail and other. And so when we're going through that, we are looking at these products and we're seeing what can we do, as Dusan said, to improve it.

21:36 And, you know, many of these products we know we can improve the quality and trust around it. But it's really a partnership with the merchant. And as Dusan said, some of these things will take some time.

21:49 That's a super helpful color. And just last one for me before I jump back into the queue. I think it was mentioned, Dusan, in the prepared remarks, or just the new platforms brought across all surfaces where customers can find you, but you didn't see that uptick in purchase frequency yet that you initially were expecting. I was just curious to dive a little bit more into, like, why do you think that's the case? And then looking forward, what gives you confidence that that can change in the coming quarters?

22:21 Overall, the whole landscape is changing with customers figuring out new ways of how to approach applications, how to approach purchases. So even for us, it's kind of a new learning phase. I feel that we are very well positioned nowadays with new application, the CRM and all platforms ready and I see our product team now really focusing on the consumer life cycle end to end and coming with features which we are releasing pretty much every week. I was mentioning that we expect this month that we will see increased conversion of customers who are starting the purchase on the website going into the application where we have much richer experience and actually better approach because typically customers who are using the application generate higher purchase frequency. This is priority number one for the team.

23:18 On the other hand, I was hoping that we will see results of this already Thank you, Bobby. We have a follow-up from Sean McGowan from Roth Capital. Sean, you can now unmute your lines.

23:47 Yeah, thank you. Your performance in travel was quite strong in North America, not as strong in international, so can you talk about what you're doing differently in those two markets that would account for that disparity?

24:05 So, travel is an example of a category that we are We are experimenting a lot. You may remember from last post we were talking about the mystery deals, for example, which we are doing. We have much more content there. We focus on experiential travel and we see when the product team switches into very dynamic, agile, AI-first mindset, we can bring an innovation in much faster pace. and for me the way how we are performing in travel and here I'm combining our performance in sales, our performance with product and engineering is blueprint which we want to have in every single other category. We see it also in things to do where I feel very confident about the talent density, about the team which we have, about the connected supply which we are bringing, about the overall way how we partner with merchants which typically we bring them to Groupon Thank you, Sean. We have a follow-up from Bobby Brooks.

25:08 Bobby, you may unmute your line.

25:34 Hey, thanks. There's also talk about, you know, how becoming an AI native platform does have, might present some trade-offs. Wanted to ask, any in the third quarter you experienced that might have capped growth near term, but you feel like laid the road for higher growth in the future? Sure.

25:59 So, obviously, I am not super happy about the results of the quarter, but when I step back and look on things from from their perspective I see us building great teams with new names joining us quite frequently right now and I consider in this AI future the talent density will be one of the most critical pieces because I don't think that any company with mediocre or average team can be successful because you need these 10xers or 100xers who can multiplicate everything through AI. With our Foundry AI I believe that we are extremely well positioned also from the perspective that we are getting faster, we are leaner, that much smaller teams are able to innovate and it translates to numbers in SG&A slower versus what I would like to see.

26:57 However, we were posting the numbers which we expect that on annualized basis we will be realizing as a savings. Thinking about the overall environment Groupon with the AI-native approach is positioned very well. I feel very strong about balance sheet. We are positioned very well here. I see progress on TTV, travel, connected supply. So also makes me think positive and now on this earnings call we can present that we have a product where we believe that this is great product for AI future with the living social because we see a need of merchant partners who in many cases simply don't want to understand what's new every week, how this demand is changing with personal agents and it's instinct, it's news, everyone else coming with changes and we can be super strong partner for their path towards the AI.

27:50 So maybe not the best quarter ever, but in terms of like how the company is positioned, how the team inside is operating and faster and faster, I don't really see disadvantages of our focus on AI.

28:05 Well said. And then just to circle back on the marketing spend, just to get a little more granular, was it certain verticals that kind of became weaker and it was mostly just on the incremental dollar? Just want to get a better sense there because the last few quarters, ROI on marketing was really extremely strong, and maybe that was because it was skewed because you were just looking at the seven-day return. Yeah. So just curious to hear more detail on the marketing dynamics that shifted in the third quarter and have you had any learnings that now you're applying in the fourth quarter that feels sustainable?

28:49 So my first part of the answer, I feel super solid about quality of our paid marketing team. I actually think that the level of detail and granularity how they are operating is the best which I ever saw in any marketplace or any company, and I'm proud about the results which we are delivering in terms of numbers. During Q3, we were simply betting on a switch how to do the targeting of campaigns in a completely different way, how to focus on long-term performance and purchase frequency, as simply here we were not able to fine-tune the Google and Meta algos to work as we were expected and we are pretty much learning and changing it on an everyday basis. So for Q4 we slightly switched the operating mode here. We still We are still cracking and changing the way how we operate the campaign so that we evaluate based on 12 months and not 7 days.

29:58 But at the same time, we are keeping much tighter guardrails so that the marketing is under better control.

30:06 Very helpful. I return to the queue. Thank you, Bobby. We'll now pose written questions to management that came in through the company's investor relations press line, as well as questions the company has received via X and Reddit from the retail investor community. Our first written question, please discuss how agentic demand may transform the demand equation. Will this change your health or hurt your goal to drive purchase frequency?

30:34 So what we are observing last, I would say, two months is a complete change in narrative and setup. In the past 12 months, AI was used mostly in the chatbot mode. People were discussing the stuff, asking for advice, asking to plan maybe the trip. With Instinct, Muse, Grogbot, and plenty of other Personal agents, we see completely new trends which will change the way how customers are purchasing on the internet. I expect that it will be less and less people over the time and this transition will obviously take time. It will not happen from one week to another or even one month to another. You see more and more people going and asking their personal agents just to take care about some part of their life and because All this new generation of personal agents has such a great understanding of personal preferences, past decisions. It will be able to come with amazing accuracy and will be able to find best possible deals. This is actually the driver why we launched LivingSocial, because we believe that there is a new opportunity for us.

31:52 and so on, going forward. We obviously now cooperate with companies which are behind these personal agents and we see them integrating now even like data feeds with deals and with offers on the internet into their system so that they can be very flexible, very fast in providing results. So I expect that this part of the demand and many more. And for Groupon, it's an opportunity from my perspective, because first of all, we have the technology and team, which is AI first, and we'll be able to connect to them and we will be very easy to approach, very accessible.

32:51 And then second, I expect that with personal agents doing all the work, you don't have the constraint of the time and focus of the customer. They will be able to do like hundreds of searches, check everything so that they find the best possible value for the customer. And in that value piece, Groupon can play an important side. I see also opportunity on the other side of the marketplace with merchants and I was mentioning it during the call where merchants for when this environment is super complex and changing really far too quickly and we see many merchant partners working and talking to us about us helping them to operate in this world and Make sure that they don't have to do investments into platforms so that they are connected to everything, but use us, LivingSocial, as a platform which will enable this AI personal agent economy for them.

33:47 Thank you, Dusan. Our next question. You mentioned that trust and quality investments reduced feelings growth by 180 basis points. Could you roughly quantify the corresponding impact on revenue?

34:02 Rana, can you take this one?

34:06 Yes. So it was actually a little bit more than the impact on revenue. We will not quantify exactly how much, but you can consider it around that level slightly higher. Thank you, Rana. Our next question, are you already seeing any measurable improvements in customer retention, repeat purchases, or purchase frequency from these investments?

34:41 So, as we were commenting on the earnings call, The purchase frequency is something which where impact takes long time. The trust and quality that which we internally focus on is something where you can't expect that if customer sees some change that they will come with the purchase next day. The worst cycle in the category is that on average they do Thank you very much. and that this is an enabler for us to grow the purchase frequency going forward.

35:32 Together with Trust and Quality, we are adding the personalization options. We are adding many new features mainly into the application, which will also make it much easier for customers. I hope that I will be able to provide more details during the next earnings call. Thank you, Dusan. And with that, we're out of time for questions, so this concludes our call for today. Thank you everyone for joining. For additional information,