Q3 2020 Groupon Inc Earnings Call

And in the cautionary language.

[music].

Good day, everyone and welcome to Groupons third quarter 2020 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the Companys formal remarks to ask a question press. The star key followed by the number one on your Touchtone phone once again Thats star.

Our one to ask a question today's conference call is being recorded for opening remarks, I would like to turn the call over to the Chief Communications Officer, Jennifer Beugelmans can you just go ahead.

Good morning, and welcome to the Bank third quarter 2020 financial results Conference call with me are our interim CEO, Eric Cooper and CFO Bill at the time.

The following discussion and responses to your questions reflect management's view as of today November six 2020, only and will include forward looking statement.

Actual results may differ materially from those expressed or implied in our forward looking statement it.

Additional information about risks and other factors that could potentially impact our financial results is included in our earnings press release, and our filings with the SEC, including our annual report on form 10-K for the year ended December 30, Onest 2018, and subsequent quarterly reports on form 10-Q, we.

We encourage investors to use our investor relations website at Investor day that Groupon Dot com as a way of easily finding information about the company Groupon promptly makes available on this website reports that the company files or furnishes with the FCC corporate governance information and select press releases and social media posting.

On the call today, we will also discuss the following non-GAAP financial measures.

Adjusted EBITDA free cash flow and FX neutral results in our press release, and our filings with the FTC each of which is posted on our Investor Relations website, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under us GAAP and with that I'm happy to turn the call.

Over to Aaron.

Thanks, Jennifer and Hello, everyone.

We appreciate you joining us today, we hope everyone is seeing safe and healthy.

As the world continues to be impacted by the COVID-19 pandemic I'm reminded everyday of the positive impact Groupon has on small businesses around the world.

Groupon connects millions of customers and local merchants and we believe that during this crisis, we had a big opportunity to help small businesses navigate through depend demicks and beyond.

And this opportunity is large.

We estimate our addressable market to be north of one trillion, we're already a market leader in fact, just to give you a sense of our scale in the third quarter alone. We sold over 12 million local units and our North American customers have spent nearly 20 million on the sizes over 15 million on botox services and tens of millions on leisure activities.

Their local neighborhoods.

Today I am excited to give you an update on how we're executing on our strategy to take share in the local market and return groupon to growth.

But first I want to take a moment to highlight our third quarter results.

On our second quarter call. We showed you proof points that demonstrated the durability of our model even in the midst of coated and we continued to build on this foundation in the third quarter.

Looking at how far we've come since just the first quarter gives us confidence that we can continue to deliver the results we need to drive the business forward.

To put this into perspective, we've gone from local units being down approximately 80% on an adjusted EBITDA loss of $22 million.

To local units recovery easily delivering $31 million of adjusted EBITDA in the third quarter and near breakeven cash flow, we posted a 40% sequential improvement through local gross profit for the second quarter and are benefiting from our success in right sizing the cost associated with our goods category bottom.

Bottom line, we believe these results provide a glimpse of our future success in local.

While our overall business is still feeling the impact of coated and there is a lot of work to be done we are confident in the strength of both our business and financial models.

We are executing on a growth strategy focused on driving customer purchase frequency and unlocking our marketplace flywheel and we believe we can create significant value.

Delivering on our core merchant and customer value propositions is at the center of our growth strategy to.

To do this we need to move beyond our incumbent high cost model that requires merchants to offer deep deep discounting deals if they want to participate at all in the Groupon marketplace.

We need to get the merchants knew more tailored ways of working with Groupon, which will remove the barriers for merchants to use groupon as always on sales channel.

And with expanded inventory, we will give customers for reasons of visit and purchase for Groupon more frequently than our historical average of approximately 3.5 times per year.

As discussed in the last quarter, we have a strategy to build more quality inventory for customers and to provide merchants with a business model that creates an economically viable way for them to work with groupon across their entire inventory of services.

We intend to deliver more quality inventory by focusing on three types of inventory deals with very few restrictions new lower discount offers in market rates supply.

Early in the third quarter, we began testing is combination of inventory types in four markets.

Within these markets. Our goal is to increase beauty wellness and these new inventory by 25% to 50% the key Zip codes.

We believe this inventory growth will lead to low single digit percentage point improvement for units in billings by the end of the six month test, we don't intend to scale the full scope of our strategy to more markets until we get signal along the way, we'll be looking to learn more about our customers and merchants want to engage with groupon and how we need to.

Continue to shape, our marketplace to meet future demands.

After only three months, we have learned a lot.

We get feedback from our merchants on a weekly basis, and then making observations about our customer behavior and we are quickly integrating these insights into our go to market approach.

Let me give you a few examples.

First we've discovered that we can reduce and remove restrictions from deals more quickly than originally anticipated.

In fact, 90% of our new merchants inventory listings in test markets carry no restrictions.

Based on this we're looking at how we can scale our efforts to remove a reduced restrictions across a wider range of inventory now beyond just our four test markets.

Second we were you importance of leading with the complete coupon packaging our sales pitch in the past we've had a far more transactional pitch focused on closing only one or two services at a high discount and high margin that we thought would perform best on Groupon.

Our new inventory listing options have now made it feasible for merchants to list their entire menu on groupon, whether through an unrestricted deal for a low discount offer which provides them with more options that work for their business objectives. As a result, we've adapted our pitch to be far more consultation, which includes reviewing the merchants entire menu of service.

Says and understanding how their objectives vary by service and then suggesting the best way they should work with Groupon.

As we talked about last quarter, we knew that ramping up our inventory test during cold it could be challenging from.

From the start our focus has been on to control, what we can and try to mitigate the impact of factors outside our control wherever possible.

This focus is evident when you look at how well, we're executing in our beauty and wellness vertical.

Given the nature of the services. These merchants offer as well as the current code related restrictions. These merchants are best positioned to adopt a full catalog approach remove restrictions and provide bookable services.

And we are doing what we can to physician group and to benefit from this verticals recovery.

We are very excited by the results, we've seen which give us confidence that we are headed in the right direction.

For example, within our test markets beauty and wellness listings per merchant from growing 40% and we've been able to meaningfully accelerate booking tool adoption and roughly one third of the new beauty and wellness merchants in our test markets have joined the groupon marketplace with Bookable inventory.

These early wins are encouraging because we believe our purchase frequency in this vertical is below where it should be given how often the average customer engages in these types of activities.

Having the right inventory to deliver on the customer value proposition is important and something we believe we can control.

Just to size the prize within beauty loans alone. If we can get our 2019, North American beauty and wellness customer base to increase their purchase frequency just one time per year that would add hundreds of millions of dollars in annual opportunity.

So while it's certainly early this progress makes us credibly hopeful.

While beauty and wellness has a built in frequency driver given how customers and actually interact with these types of services.

The dynamic in our things to do vertical is a bit different with Coca 19 restrictions, having a bigger impact.

Despite this challenge we are tracking well to our goal of increasing inventory in our test markets by 25% to 50% as soon as possible.

And to date, we've increased our inventory by about 50% in our test markets for us control.

So let me provide some context for with scaling our test could mean as we look ahead to 2021, while early our merchants are responding to our expanded inventory options, including the introduction of offers.

This gives us confidence that we can deliver a fundamentally better customer and merchant value proposition and drive growth.

Once we have the right level of signal. We also believe we will be able to scale our strategy relatively quickly and reach an inflection point for growth shortly thereafter.

One factor that gives us confidence on this front is the sales momentum. We believe we can build by removing restrictions introducing more inventory options in increasing bookability, we can quickly change the customer experience.

To date, approximately 25% of our top beauty wellness merchants and our test markets and agreed to restore full catalogs without restrictions and making for local this.

This is creating new experience for customers by significantly reducing friction and increasing the likelihood that customers will always find something of interest to purchase.

We believe that this coupled with marketing campaigns focused on driving customer awareness will reduce barriers for customers and drive purchase frequency.

To that end, we are also launching new marketing campaigns within our four test markets.

We are already a well known brand with millions of customers, who love coupon the far too many still view us as only inspiration marketplace.

We are testing campaigns that focus on repositioning groupon as a marketplace that now has more of the inventory customers are looking for.

Weve also developed unique customer journeys incentives and promotions that we believe will be important drivers of our ultimate goal increasing customer purchase frequency.

While inventory growth and progress within our inventory test has been our top priority. We have also continued to improve the customer and merchant experiences.

On the merchant experience side, we're focusing on positioning groupon as a trusted partner merchants can turn to as they're launching for growing our business.

We have a unique opportunity to reset the merchant perspective, as they continue to face covered related challenges and better tools are a big part of this.

Let me describe a few of the launches that are most excited about on the merchant side.

First we launched several enhancements to our self service tool now called campaign builder. This.

This tool allows merchants to manage their inventory listings, including copy images of their services and facility and data driven intelligent pricing recommendations and insights.

One of the most important features of this launch is that a merchant can take a new listing wide and less than 24 hours.

We are also working on functionality that will make a seamless for merchants to convert deals to offers and vice versa, allowing them to efficiently manage their coupon inventory in demand.

Next to further improve our booking tool capabilities, we launched Google to a calendar seating disintegration means that merchants can now seamlessly and automatically manage all of their bookings through the Google calendar.

Whether a customer makes an appointments through groupon or through another booking tool compatible with Google.

They will all be integrated in some merchant school calendar.

We heard from our merchants that they were having a hard time, managing multiple booking platforms, which frequently led to double booking and this tool eliminates that issue.

Lastly, we launch in NBP for sponsored listings product, which will allow merchants to bid for top placements in the groupon marketplace.

If successful we believe that merchant services like sponsored listings can become a sustainable revenue stream for groupon over time, and a strong promotion tool for merchants that mirrors to offer to other scaled marketplaces.

By wrapping intuitive self service merchant tools around a healthy and growing marketplace. We believe we can turn coupon into a must have always on sales channel for local merchants around the world.

On the customer experience side, we're reducing friction and making it easier for our customers to find buy and redeeming a groupon.

Our customer value proposition must allow for customers to find inventory, they're looking for and transact and redeemed seamlessly.

During the third quarter, we added new features to drive customer engagement, including the search relevance and navigation enhancements.

We also completed a successful pilot of our future personalization engine.

Before I turn the call over to Melissa I wanted to leave you with a few quick insight on our fourth quarter holiday plan.

This year, we're taking a global approach to our marketing and merchandising campaigns. This.

This new single global framework will drive better connectivity across internal teams marketing channels and our public facing brand.

And while we expect the goods category to play a role during upcoming holidays, we plan to use data to drive more cross category merchandising to keep local top of mind. During what has historically been a good focus quarter and provide our customers with more interesting gifting solutions.

These are just a few insights into our approach for the fourth quarter. It's an important time for Groupon and we're proud of foundation. We've built that we believe will allow us to meet the needs of our customers and merchants this season.

I hope the updates that I provided you today give you confidence that we remain focused on the most important priorities and that we're making progress.

We are successfully managing through the pandemic and positioning ourselves to support local merchants during the recovery.

We are executing on a strategy that we firmly believe will focus on the path to growth.

Thank you for your time today and I look forward to take your questions with that let me turn the call over to Melissa.

Thanks, Dan.

Thanks to everyone for listening in thanks.

And Aaron noted.

We appreciate your time and I'm excited to provide you with a few updates on our financial and operating progress.

Including revenue of our third quarter results, the new fibers and contracting.

The status of our restructuring plans and lastly insights on our expectations for the fourth quarter.

Starting with our third quarter results.

As Eric mentioned, we continued to demonstrate the durability of our business model.

And then we have the right foundation for credit.

We delivered $594 million of gross billings.

$304 million of revenue one.

160 million of gross profit and 31 million and adjusted EBITDA.

We were pleased with the strong sequential improvement coupon local versus the second quarter and the progress we made against our restructuring plan.

At the same time, we posted nearly breakeven cash flow and exited the quarter with a solid balance sheet and.

And approximately 789 and cash.

Including 200 million of outstanding revolver borrowings.

Our results came in above our expectation and we're very proud of our team effort.

While there is still a lot of work to be done and our local category only recovered to roughly 56% of Pico because profit levels in the quarter, we are making progress and believe we have a financial stability, we need to execute on our growth strategy.

Turning to a review of our core operating metrics.

Ended the quarter with 34 million active customers.

Since active customers in the trailing 12 month net track similar to our commentary last quarter, we would expect that number to decline as it continued to reflect the impact of COVID-19.

During the third quarter, we sold a total of 21 million units glow.

Global local units were $12 million, including triple digit sequential growth in both periods dominance and.

Dale.

Global goods units for nine network.

Now, let me dive a bit deeper into the drivers of our financial results.

Starting with what we saw on local consolidated local revenue and gross profit increased 35% and 40% respectively in the third quarter compared with the second quarter.

We were able to successfully leverage our diverse local inventory and from a settlement, let them, particularly in our beauty and wellness experience.

In fact by the end of the quarter and wellness is already 70% are covered.

This gives us even more confidence in our opportunity ultimately growing in local.

That said, while we are encouraged that our recovery trend has been a bit more stable than we originally anticipated.

We did see local recovery begin to plateau in the quarter let.

Let me provide you with an update on our good performance our transition to a third party marketplace and the related financial impacts.

First we are delivering on our plan to simplify our goods operation against fixed costs and running at a more profitable level.

In the third quarter, however, as we steered impressions towards our recovering local category, we saw a pullback in our good performance compared with the second quarter.

This performance was also impacted by the reintroduction of strong competition in paid marketing channels on lower coated related TP man.

We made progress during the quarter, our transition to a third party marketplace and exited the third quarter, it's roughly 55% of our North American Express several transitioned to a third party.

During the first quarter, we became aware total inventory has migrated move more time to allow our internal algorithms to adjust to that we would not disrupt our business.

As a result, the transition has moved more slowly than originally anticipated.

We are on track to migrate substantially all of our North America marketplace to third party by year end, but our number one priority on this plan is to ensure a seamless transition.

As a reminder, in a third party model, we recognize revenue on a net income.

Moving down the TNL.

Hey was 124 million, which reflects the impact of the planned restructuring actions, we took in the third quarter.

Actually in 18 and better than our expectations due to lower variable compensation and capability and non payroll spending as we continue to actively manage our expenses during the pandemic.

Marketing expense was 31 million, we remain disciplined in our approach to marketing, making targeted investments to engage local purchaser.

Now for an update on our restructuring plan.

As you know we've been executing against an aggressive plan to against the fixed cost base.

Last quarter, we provided some insight into the power of our financial model in light of the cost Takeouts alone.

Noting that based on our $225 million in targeted cost savings. We believe we can generate approximately 250 million in adjusted EBITDA by 2022.

If we recover to just 80% of our pre cobot gross profit level.

As our results show, we are well on our way to reaching our 2022 cost savings goal.

And in the third quarter, we initiated the second phase of our restructuring plan.

We are on track to achieve $140 million of savings in 2020 from the combination of our restructuring actions and furloughs.

Substantially reduced fixed cost structure provides us with the financial flexibility to continue to navigate the pandemic and is the foundation for our long term success as a leaner more agile and focused organization.

Before I turn it over for questions I want to give you some perspective about the fourth quarter broadly speaking as I mentioned earlier in the third quarter EPS, our global local recovery begin to plateau.

And while October performance in North America, local was stable with units down 40% year over year. It will not that this trend will continue into November and December given the resurgence of coated cases and heightened restrictions here in the United States.

In international we've already seen a pullback in October which included worsening trends throughout the month and unit being down 59% year over year.

In fact, as we have seen some government in Europe mandate, new Lockdown rule local performance in some country has sharply declined.

As much as 80% year over year.

So we have reason to believe the situation may worsen throughout the rest of fourth quarter.

Clearly there is a lot of uncertainty driven by the pandemic and other macro factors. It makes it difficult to predict our performance in the fourth quarter.

Given the work we've done to take cost out of the business. We believe we remain well positioned to sustain the impact of coping.

In closing please.

Feel well prepared to meet the needs of our merchants and customers as we finish up the year.

We built a new operating culture that is allowing us to pivot quickly to navigate challenges related to the pandemic, while executing on our growth strategy.

We are collaborating more effectively to drive productivity and move faster and smarter.

We have proven that our businesses affiliates and we believe groupon can play a favourable in the success of small businesses around the world as we emerge from Covance.

We are energized about the future and we look forward to updating you on our progress.

With that we'll open up the call for questions.

At this time I would like to remind everyone in order to ask a question. Please press Star then one number one on your telephone keypad.

We will pause for just a moment chicken barbecue a roster.

Your first question comes from the line of Eric Sheridan from UBS. Your line is open.

Thanks, so much for taking the question I hope everyone will team is saying well.

Maybe sticking with the comments during your prepared remarks on the supply in the inventory side.

We'll dial a little bit and give us a sense of when.

You all doing what's within your control and sort of the best in the supply of broadening out the supply in the marketplace. What we should think that might mean for eagle conversion of traffic or efficiency of marketing dollars will return on customer spend when you think holistically about what the platform will evolve into over the next couple of years. Thanks, So much.

Thanks, Eric.

Let me, let me tell you a little bit about the inventory test and exactly how we see that flowing through so as we discussed we're seeing results through scorecard you shared that we know the winning for groupon. The other side of winning and local which is this trillion dollar Tam that we've been talking about and that we need a local requires building inventory at June.

Lastly, as you mentioned, so thats why were building a suite of inventory products that give merchants the flexibility to be able to put more on the platform, which is exactly what our customers want and we're seeing it results in the merchant side with inventory growth in more than 50% and our test markets than in our control markets.

But let me give you a couple of examples as to how the inventories built.

Ill give you an example of a woman I talked to who manages the spot. So what she did is should historically been running three deals with us and issue is a very good merchant our platform with the new offering. She went from three deals to 72 items now not everybody is created equal, but three deals to 70.

Two items fully unrestricted those are full catalog fully unrestricted and added bookability.

Full trifecta of what we wanted to accomplish here when I talk to are which is a couple of weeks. After she wants to are you offering.

We looked at the results in about a third of the transaction. She was seeing was on inventory should never would have been able to add before we change the value proposition. So we look at what we're seeing on a merchant by merchant level. We look at the progress we've made on our scorecard and we see just a ton of potential.

With the direction we're headed.

Now I will fluctuate real quick just because you mentioned it before but you Judy Lowness alone just one additional purchase from our H. BW customers that we had in 2019 as already hundreds of millions in bookings.

Yes, Eric chime in there.

Your question is absolutely we believe that the strategy is key to ultimately unlocking purchase frequency.

Which will drive that marketplace by Aneel. So as you think about overall.

Over the long term certainly.

I certainly would expect there to be efficiencies marketing over time.

Right.

Great. Thank you.

Your next question comes from the line of Deepak Mathivanan from Barclays. Your line is open.

Hey, guys. Thanks for taking the question just wanted to ask about the good business. It sounds like the business model transition is tracking pretty well, but as you go into the holiday shopping period in Oh, how do you think about.

Selection on the inventory levels on the platform now and what are you doing to kind of get at the right place for the next couple of months and then related to that.

Is it fair to assume that during the call was times in markets, where there is a bigger hit Lake said, particularly in Europe, you how opportunities to merchandise goods better our anda.

Achieve better conversion in some of the heightened loading areas on the website.

Thanks for the question. So anytime we talk about goods reiterate that winning for Groupon is on the other side of bidding in local that's the key and the war goods plays as part of our ecosystem is similar to that of our broad diverse supply base. The goal is to engage to support local buyer.

So with goods in particular, a couple of things as you noted, we're making good progress on our ability to simplify the business and run it in a lightweight way so really good work by the team in order to get us here as.

As it relates to the way, we think about goods in our overall assortment a curious here's just like so now that I think is helpful.

Good and with our assortment overall, we're not just targeting any customer we're targeting local buyers who live near long locals, who live near strong local supply such that if we bring them in at a lower margin item say a good we can capture the share of wallet on our differentiated local operate with comes with significantly higher margins.

So we expect this type of cross category promotion to be do something that we can more Europe, including in the holiday season, now specifically to your point about Europe.

To the extent that there on more significant lockdowns, yes as demonstrated in Q2, we now have all of the experience we need that on a market by market on vertical by vertical and even on a customer by customer basis. We can adjust our assortments are driving a point on that last one just the cars restrictions are at a certain level in different geographies.

For individuals have different comfort levels, and what they want to experience and of course, the boat with their behavior, we pick up on that behavior, we could market. Accordingly, so across the board. The marketing team is teed up to be able to support our merchants and also deliver for our customers over the holidays with anything on that.

No I think that covers it.

Okay.

Okay. Thank you so much.

Your next question comes from the line overtime. Unfortunately from view Davidson Your line is open.

Great. Thanks for taking my questions. So most of my questions is similar as it has been on us for lumber square little differently. So.

To the extent of the two had lockdowns in place in the Us and Europe earlier. This year. It seems like your strategy was to lean into goods lean into deliveries or.

So to what extent do you think you can apply that playbook. If we go back into Lockdown and then I'll ask my second question RPX level. Thanks.

Thanks, Tom So.

We have the playbook in the playbook is ready to go and the teams already beginning executed on it across the markets in Europe.

What I'll say and I think it's an important details we learned a lot from Q2 normally would have necessarily expected the way the different local centers would have responded even in the darkest times. So for example.

Auto services, which is a big part of our local business auto services or something that people are more comfortable specific health PD lone the services are things that people continue to be comfortable with an EBITDA is some of the more restricted us cities, they're continuing to be allowed at a reduced level and people are comfortable with and as well. So you see that across the spectrum all the way.

Down the spectrum to live events for live events, obviously across the world with far less business. So we've learned a lot through Q2, we had the ability to apply all of that is site and execution muscle to what we ever comes at us going forward.

So with my second question there is a concern Mccarthy commerce in the fourth quarter about inventory and logistics.

With respect to work gives you confidence on your group business that you will have giftable products inventory and then that the consumer will be able to get them in a timely manner from a logistics standpoint.

Thanks, So we work with in our New third party model.

We work with a mailing list of distributors that we have very good relationships, we know where they are we know where their.

Distribution centers are we have the SKU level information and rather robust reporting. So if if for example, there was a problem if any one distributor we can quickly switch to another or change product lines that we promote one thing that's really special about groupon on as it relates to both good and local and this applies to your other question as well.

So it's we suggest to our customers what they should be interested in whereas other marketplaces via goods or any other business outlook or something else.

They are reactive.

We suggest is that power of inspiration allows us to suggest a customers different things they would be interested in so it's different lines of local we're more restricted for a period of time, we could suggest something else and we got lines local open up we can suggest that accordance.

Accordance with merchant to customer strength levels. The same thing applies to individual goods items as well and on the distributor by distributor and SKU by SKU level, and we have the ability to steer that demand.

Thank you I appreciate that.

Your next question comes from the line of Doug Anmuth from JP Morgan Your line is open.

Great. Thanks for taking the questions.

Talked about launching a marketing campaign in the test markets. So be you could just elaborate on the strategy and timing there just given this kind of demand environment.

And then also just curious.

As youre going into the holidays here how are you.

Anticipate kind of emphasizing local more relative to goods over these next couple of months. Thanks.

Sure. Thanks, John So thanks for asking about the strategy again. This is where we're heads down focus we have demonstrated the durability. This business from Q2 to Q3, and we've seen with that recovery looks like so that just gives us so much more confidence in the model overall.

And so we are focused on growth and so as we look at the success Weve already built on the supply side, which is significant with the degree of inventory build with a degree of unrestricted deals coming on and in book ability as well. We can now start to say, yes to customers more so that is they want to buy something we have.

Inventory, we're saying guest whereas for years, we could repeat due to restrictions that we didn't have inventory. We said no. So as we look at the customer side. This is where we just draw a lot of energy what we're going to apply here is the same exact product discovery tactics that we took on the supply side. That's a lean discovery. This is what's helping us test it a rate.

On on changed the throughput on our learnings to make sure that we achieved the milestones on our scorecard. So let me give you. An example of just what we're seeing and I'll talk a bit more about what we're doing because it's early stages in what we're doing EPS. We've now built to supply the second half of this now six month period is to generate the demand and touched a lot of marketing campaign, but.

The early adopter behavior is really encouraging. So one example, as we look at different customers and profile them.

Is a woman who bought a salt caves and when I looked at our profile on sheep office located in until the summer is right. After the Salcedo added up full catalog and unrestricted offering that was Bookable Shouldnt ahead issue return for multiple other services. The addition to another self chase something that we previously they have restricted.

Before she added micro derm abrasion emphatic facials another type of facial this was really taking advantage of our full catalog behavior and so just by looking at customer behavior and early adoption help influence our marketing campaigns because our job is now to get greater share of wallet from our customers for our merchants. So we're testing campaigns that reposition groupon.

As a marketplace for these individual customers in early adopters first and then for more people in these key cities. So that they can understand the full breadth of our offerings that they get more to buy and that they can buy we buy again this manifest itself in unique customer journeys for incentives and promotions and we're really excited about it.

Please go ahead your second question as well.

Justin just on local.

During the holidays, just how you plan on cash shifting the focus.

So again within local this is this is going to be a week by week.

If the walk seasonally by weekly focal muscle to do that but specifically.

Again, we've seen certain local verticals continue to maintain.

Even within Coty to different degrees, it's on a customer by customer merchant by merchant level, we have the ability to flex our inventory I can tell you that the typical holiday season.

Local is something that is heavily gifted along with goods in particular, one of the categories. It's the most gifted we might not surprise you, but is beauty and wellness is just an exciting things in there the size that people like to give as gifts in our big purchases that time of year. So we have the ability to flex accordingly, the customer comfort and level of restrictions and feel pretty confident in our approach.

[music].

Thank you.

Your next question comes from a line of Mike Levin from Goldman Sachs. Your line is open.

Hi, Thanks, very much for the question.

There are a lot of moving parts as we think about modeling with the topline for the rest of the year I was just wondering if you might.

Be able to help a little bit in terms of translating the unit trends that we're seeing.

In October to date.

And to what we should expect for from bookings and revenue appreciating.

Appreciating that there is going to be some noise around the the goods ambition as well thanks.

Thanks for that and in.

In terms.

What we're seeing and how we're thinking about the fourth quarter as I mentioned in my prepared remarks.

North America local performance was stable and October.

Theres a lot of macro noise right now, particularly with the election. This week as well as pricing Kovac cases that were watching that very closely.

On the international front. So there the dynamics are very fluid, we saw worsening trend in local throughout the month of October so as government implemented new Covent related restriction and even as recently as we add additional international countries, including the UK.

Germany had restriction sell into effect. So the trend by market are what you would expect so in the countries and cities with the largest lockdown, that's where we're seeing greater pullbacks in local performance on.

As Aaron mentioned earlier, we are going to be using our diverse set of supply.

And making sure that were surfacing relevant offerings to customers.

And.

And I guess as it relates some modeling bookings should we assume that theyre down in line with the units are.

Is there another.

Yes, that's out there that's a fair that's a fair assumption.

Okay. Thank you.

Once again, if you would like to ask your question. Please press Star then the number one on your telephone keypad. Your next question comes from the line as you go.

Iridium look from Wedbush.

Wedbush Your line is open.

Hey, guys. Thanks for taking the question I wanted to dig in a little bit more into.

The test markets increased inventory.

And Dave.

Kind of a one one off example, our other EPS.

And then in addition to that a lot of detail on the merchant side and now what they're seeing is there more more broad based on evidence are examples that we're seeing frequency.

Pick up in in these test markets is as we're starting to to build this out.

Hi.

Is it easy to read through the the cobot noise to get a good sense of what you are seeing are we on while you're doing that.

Thanks.

And this is this is a really good question and again, we are just starting the marketing now so the information I'm, giving you from the early adopters is just that deal with any new product launch.

You are going to look at the early adopter behavior first in build your insights and marketing campaigns based on what you understand and so yes. We have the early adopter information, we know that we changed our value prop. They know that we can see behavior change and so now the job is marketing exactly what you said is to educate we havent launched the marketing campaign the level of scale yet.

And so thats the work that needs to be done I will say that even though coded certainly make things harder.

We have clear momentum on the merchant side. The merchants are engaged there Tony they're saying, yes to that bringing the customers backing back repeatedly and that we know the more inventory is what our customers want so that we know that were on the critical path to growth.

And.

Additionally, as we are seeing new merchants come onto the unrest highly restricted rates of 90%.

We will also believe the simultaneously even within coal that we can roll that out as well even beyond our test markets. So from insights that we can get more customers from launching a marketing campaigns. The insights will get from those and from being able to continue.

Continued momentum.

Supply side, including extending our learnings to value beyond the test markets.

Even within coal, but theres still a lot of energy that we have in driving this business forward, which of course is built on the fact that we feel comfortable with the durability of our business as we've seen.

Customers come back from Q2 to Q3, so we feel pretty good overall about both the cast and the overall energy or what we will focus.

Okay, great and.

A follow up I have a kind of two part question on on the merchant side and so this whole catalogue concept is.

I think.

Our different than how.

Groupon.

Our operated before or done viewed by merchants.

Can you talk about the the initial reactions to sell through process.

Are there any pushback from merchants and kind of feeling like.

Maybe they're they're giving up.

Too much ownership by putting everything on onto Groupon or are they generally kind of.

So excited about the opportunity to do that and then.

With its early so maybe maybe too early to get a good read but anything positive you are seeing from sponsored most banks and.

And and self service and driving yes.

Some of the merchant adoption.

Sure.

I mean, what you are asking about the core elements of the value proposition. So this is exactly where we're focused.

On on the merchant side, we know merchants want more and so your question is is there any pushback from the merchants. The answer is is that they are we have seen really surprising uptick now the uptick with our new merchants is extraordinarily high but even the uptick with our old merchants. You then have to be trained on the new models, sometimes that.

Harvard introducing someone is significant let me give you a data point.

This is a significant data points of the beauty and wellness merchants in these four markets.

We look at the top merchants, specifically set the 80 20, the merchants that make 80 20 to sales and very quickly as we rolled out in perfected our sales pitch over a quarter of them signed up not just for one of these things, but the full trifecta full catalog unrestricted and Bookable and obviously some of the ones outside that.

Order signed up for more of these services, which is how we built the overall inventory growth and density, but you're not seeing an early product launch with like single digit percentage uptick you're seeing like our our our first go at this and putting this out there we're seeing significant uptake among the merchants that make up the lion's share of our overall business and that's on the full trifecta.

Let alone some merchant, maybe not wanting to add booking but adding their full menu in unrestricted way so.

We're seeing really encouraging results on the on the supply side and hopefully that gives you a little bit more color as to how that is working on that on the merchant experience.

Experience elements. This is really important and we havent talked a lot about this but now we just released a lot of information related to all the progress we're making.

So yes inventory is the top priority.

Which means that we're addressing the gaps are merchant value proposition our customer value props proposition in here is the exact way I think about it for what a merchant wants is a merchant once things easy they want a lot of customers and they want to make really good unit economics from our inventory plan was talking about the unit economics, we're addressing that had on the go.

Thank you the results of what we're seeing.

From an easy standpoint, now we're talking about seems like campaign builder. This is self service tools for years coupon that look self service tools. If you wanted to make a change something as easy as an image or a couple of words you have to call. Your rep go back and forth over the period of days and eventually or change we get made now campaign builders merchants Committee.

Based on their own like they are used to doing the other advertising classes are marketplaces and.

This just gives so it gets leveraged to merchants and to give leverage to our sales team. You can think about how much time are going to save for a sales standpoint, with greater and greater adoption here. So that sales team could focus on far more value added components of their jobs. So we're really excited about champagne builder and what it does for the east portion of our value prop as well Google to a calendar shift.

Making it easier for merchants to bring their existing calendar booking tool and have it work seamlessly with groupon and what that allows is allows merchants to have a calendar tool that integrate with Google I think square may be among the largest but there's many of those then all of a sudden they now have the ability to manage bookings directly using what they already have their staff trained.

John and seamlessly to the Groupon marketplace and the last portion of that is sponsored listings. So this goes after the reach component of the value proposition what our merchants have told US is they want more and when our best merchant say they want more for years. We've said we have no ability to do that notwithstanding listings were saying, yes, just like every other marketplace if.

You want to spend a little bit more of a pay as you run a business better than your neighbor. Then you can now do that and so thats. What this NDP starts to do it's early we've launched it in a way just like our commitment to lean operations, where we can start to get signal and then scale. It accordingly, so understand the customer response and understand the right pitch to merchants in the way that integrates with self service.

Rules, but this is something you've seen across all their marketplaces and advertising platforms out there. So we have a team the confidence in our ability to scale it appropriately for the groupon marketplace and we're pretty energized about all these things you just asked about.

Awesome, Thanks for all that color.

There are no further questions at this time and with all that we'd like to thank everyone. Today for joining Groupon incorporated Q3 2020 earnings Conference call you may now disconnect.

Alright.

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And.

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