Is This Groupon Restructuring a Total Dud?

Groupon Inc. (NASDAQ: GRPN) has faced its share of problems, namely with the daily deals website trying to move away from just being a daily-deals site. Now the company is shedding 1,100 workers. While this is about 10% of its workforce, and while this is mainly from its international operations, it seems fair to ask two questions here, as this entire restructuring effort may not accomplish that much in the end.

The first question is whether this is really enough of an effort. Groupon was not very aggressive in showing what this would save the company. It even noted that any cost savings would be immaterial in 2015 and that savings in the coming years will be primarily reinvested in the business.

The second question is whether Groupon’s costs are really the issue in the first place. Groupon came public as a higher-growth company late in 2011. All you have to do is look at a long-term chart and you can see how ugly it has been here.

Here is what the company’s SEC filing said:

On September 18, 2015, the Board of Directors of Groupon, Inc. approved restructuring actions relating primarily to the Company’s international operations. These actions are expected to involve an overall reduction of approximately 1,100 positions globally and be substantially complete by September 2016. In connection with these actions, the Company expects to record total pre-tax charges of up to $35 million, including approximately $22 million to $24 million in the third quarter of 2015. Substantially all of the pre-tax charges are expected to be paid in cash and will relate to employee severance and compensation benefits, with an immaterial amount of the charges relating to asset impairments and other exit costs.

The Company intends to exclude the restructuring charges from its non-GAAP financial metrics, including Adjusted EBITDA and non-GAAP EPS. In addition, the Company expects that any cost savings from the restructuring actions will be immaterial in 2015. Cost savings in subsequent years are expected to be primarily reinvested in the business.

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24/7 Wall St. decided to run a per-person severance here. The release says “up to $35 million” and the 1,100 people will translate to a per employee cost of (up to) $31,818.18. That isn’t exactly cheap.

As far as the operating costs are concerned, Groupon spent $1.56 billion in “Selling General and Administrative” expenses in 2014, versus $1.43 billion in 2014. Revenues grew to almost $3.2 billion from $2.57 billion a year earlier. Unfortunately, Groupon’s operating income was actually a loss, at -$14.8 million in 2014. The operating income was $75 million in 2013. Net income (or loss) applicable to common shareholders was -$73 million in 2014, -$95 million in 2013 and -$67 million in 2012.

Where the Groupon story gets interesting is in the Thomson Reuters consensus estimates. Revenues are expected to be down 0.4% to $3.18 billion for 2015, with earnings per share (non-GAAP of course) rising to $0.14 from $0.08 in the prior year. For 2016, Thomson Reuters has the consensus estimates pegged at $0.18 per share on a sales gain of 11% to $3.53 billion in revenue.

Groupon ended its June (2015) quarter with $1.11 billion in cash and equivalents, and another $150 million in long-term investments. The balance sheet showed $792 million in total stockholder equity and $537 million in net tangible assets. All that compares to a market cap of $2.7 billion.

Groupon shares were last seen down 1.9% at $4.09 late Tuesday morning. It has a 52-week range of $3.53 to $8.43 and a consensus analyst price target of $6.06.

Companies generally seek to have their shares rise when they announce restructurings and job cuts due to lower expenses. It turns out that the savings being reinvested may not seemingly generate real savings, other than the people part of the equation.

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