Groupon's marketing spending will take a year to pay off

Groupon Inc. is spending millions on marketing that won't pay off until next year.
Groupon Inc. is spending millions on marketing that won't pay off until next year. PHOTO: GROUPON

PORTLAND (BLOOMBERG) - Groupon Inc., the daily deals provider attempting to transform into an online marketplace, is spending millions on marketing that won't pay off until late next year.

Chief Executive Officer Rich Williams, who was promoted to the top job last month, has committed to spending US$150 million to US$200 million (S$211 million to S$281 million) more on marketing in 2016, a pledge that has triggered a 26 per cent slump in the stock on concerns that expenses will balloon while revenue stagnates.

With marketing investments made this quarter, Groupon will start to see these pay off in the fourth quarter of next year, Mr Williams said in an interview at Bloomberg's headquarters in New York Tuesday.

The company will focus its spending on search- engine marketing, Facebook and TV ads and other traditional mediums, Mr Williams said.

"We'll play in the drive-time radio space. We'll play in hotel elevators," the CEO said. "You'll see us mixing it up quite a bit. We have a fun brand, and we also have a big story to tell."

Mr Williams, who joined Groupon in 2011 from Inc. after a career in marketing, is tackling the daunting task of making a former Internet darling relevant again. This year the company has cut jobs, shuttered or sold off stakes in overseas businesses and changed its top management amid disappointing sales forecasts.

Groupon has struggled to reinvent itself. Part of Mr Williams' plan is to continue to evolve into a broader online marketplace of goods, expanding into products like home furnishings.

So far, investors have remained skeptical. The shares have plunged 64 per cent this year, hitting an all-time low in November. They rose 4.9 per cent to US$3 at the close Tuesday, giving Groupon a market value of about US$1.84 billion.

Mr Williams, who's the third CEO in as many years, is pragmatic about his turnaround plan. If the marketing push fails to attract new customers, he said he'll change his strategy.

"If we go out to market, and we see it's not working, we are not going to blindly spend US$200 million," he said. "We are not going to waste money. If we see that, we'll pivot."

More changes are coming. Mr Williams said he is evaluating the company's operations in 36 remaining countries, and will decide in the first quarter whether to sell more stakes or shut down more overseas businesses. He is also continuing to make changes to his executive team, and "there will probably be new people who will join in relatively short order," he said.

Groupon hasn't received any takeover offers, Mr Williams said.

"This can be a very large company over time," Mr Williams said. "We've been conservative in the next year because we have a lot of change coming."