Groupon, the struggling Chicago-based online marketplace that built its business model on short-term daily deals, may be running out of time itself.
Now led by a Czech investor, Groupon issued a “business continuation” warning during its tepid first-quarter earnings report this week, suggesting the company could be insolvent within a year.
“We understand that changing our business will be difficult and that it won’t happen overnight,” interim CEO Doosan Senkipel told investors during the earnings call on Wednesday.
Groupon also revealed that it will end the lease on its massive River North headquarters next January — two years earlier.
Chicago’s tech rhino, which has been downsizing and retooling amid declining revenue, posted a net loss of $29 million in the first quarter and about $164 million in cash through March 31, according to a Securities and Exchange Commission filing.
Last year, Groupon used as much as $136 million for operating activities, which means its belt-tightening and revenue-generating actions will soon have to take hold to keep the online marketplace known for discounts on laser hair removal, kickboxing classes, donuts, and other open-for-business deals.
“Continued cash outflows and operating losses indicate that we may not be able to meet our commitments over the next 12 months,” the company said in its quarterly report.
In March, Sinkibel, a Czech investor and Groupon’s largest shareholder, replaced Kedar Deshpande and took over as interim CEO at Groupon. Senkypl, who had built a 22% stake in the company, entered into a standstill agreement as part of his appointment, capping his stake at 25% for one year.
Groupon, which had been losing money for years, was engaged in a “turnaround strategy” under Deshpande, the former Zappos CEO, who took over in December 2021. The plan focused on cutting costs through downsizing, with two rounds of layoffs canceling a total of 1000 jobs.
The company had 2,904 employees worldwide, including 799 in the United States, at the end of 2022, according to SEC filings. Another 700 employees were laid off during the first quarter.
Senkypl outlined the eight-point turnaround strategy during the earnings call, and in a letter to shareholders. In the letter, he said the goal is to follow the path of a Groupon clone in the Czech Republic that has successfully transformed from “a daily deal discount flash site into a destination experience marketplace.”
At the top of the to-do list is fixing the supply side of the market by attracting and retaining local merchants with more flexible online offerings. Sinkibel said the process of transitioning merchants away from the deeply discounted daily deals formula will take at least 12 months.
The continuity warning may be a growing concern for investors.
Auditors are required to issue a going concern warning when they believe a company may default on its debt within 12 months. Sometimes, but not always, it’s a precursor to filing for bankruptcy, according to Dan Rahill, a longtime Chicago tax partner and former president of the Illinois CPA Association.
“The accounting firm is flying the flag,” said Rahil, who now works as a wealth strategist at Wintrust Wealth Management. “This does not mean that they will go bankrupt – many companies working in this field have turned the matter around. But it alerts the public that the company’s financial situation is fraught with danger.”
A Groupon spokesperson did not respond to a request for comment.
In 2010, Groupon moved to its headquarters at 600 W. Chicago Ave. , becoming one of the largest tenants of the former Montgomery Ward catalog warehouse and has leased over 300,000 square feet through January 2026. All space is listed for sublease.
In January, Groupon exercised an option to terminate the lease two years earlier, which required the company to pay a $9.6 million penalty, according to SEC filings.
Groupon River North headquarters was once the center of Chicago’s tech ecosystem.
Launched in 2008, Groupon has created its own e-commerce niche with deeply discounted daily deals on everything from manicures to meals, distributed to subscribers via email.
The company had more than 11,000 employees worldwide at its peak in 2012, but has been in steep decline for most of the past decade, as its once groundbreaking business model struggles in a more crowded and competitive digital marketplace.
Google tried to buy Groupon for $6 billion in 2010, but investors and co-founder Andrew Mason said there was no deal. By 2011, Groupon was valued at $25 billion, and the company went public that fall, raising $700 million in the largest technology IPO since Google.
The market capitalization as of the close of trading on Friday is approximately $100 million.
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