Groupon, the ailing Chicago-based online marketplace whose business model is based on short-term, day-to-day trading, may be running out of time itself.
Led by a Czech investor, Groupon this week issued a “going concern” warning in a tepid first-quarter earnings report, suggesting the company could be insolvent within a year.
“We recognize that turning our business around will be difficult and that it won’t happen overnight,” interim CEO Dusan Senkypl told investors during Wednesday’s earnings call.
Groupon also announced that it would be terminating the lease on its massive River North headquarters next January — two years early.
The one-time Chicago tech unicorn, which has downsized and restructured staff in the face of declining revenue, posted a net loss of $29 million in the first quarter and had about $164 million in cash left as of March 31, as if from a filing with the Securities and Exchange Commission.
Last year, Groupon spent $136 million on operations, which means it will soon have to make savings and generate revenue to power the online marketplace known for discounts on laser hair removal, kickboxing classes, donuts, and other deals is to keep open for business.
“Continued cash outflows and operating losses indicate we may not be able to meet our commitments over the next 12 months,” the company said in its quarterly report.
In March, Senkypl, a Czech investor and Groupon’s largest shareholder, replaced Kedar Deshpande and assumed the position of Groupon’s interim CEO. Senkypl, who had built up 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 has been losing money for years, pursued a “transformation strategy” under Deshpande, the former CEO of Zappos, who took the helm in December 2021. a total of 1,000 positions.
According to SEC filings, the company employed 2,904 people worldwide at the end of 2022, including 799 in the United States. Another 700 employees were laid off in the first quarter.
Senkypl explained the eight-point transformation strategy during the earnings announcement and in a letter to shareholders. The goal is to follow the path of a Groupon clone in the Czech Republic that has successfully transformed from a “flash site offering daily deals to a marketplace for destination experiences,” he said in the letter.
High on the to-do list is improving the supply side of the market by attracting and retaining local merchants with more flexible online offerings. The process of retailers switching from the heavily reduced daily offer format will take at least 12 months, Senkypl said.
The going concern warning could be a growing concern for investors.
Accountants must issue a going concern warning if they believe a company may default on its debts within 12 months. Sometimes, but not always, this is the prelude to filing for bankruptcy, according to Dan Rahill, a longtime Chicago tax partner and former chair of the Illinois CPA Society.
“The accounting firm flies the flag,” said Rahill, who now works as a wealth strategist at Wintrust Wealth Management. “It doesn’t mean they’re going bankrupt — many companies that survive have turned around. But it alerts the public that the company’s financial situation is precarious.”
A Groupon spokesman did not respond to a request for comment.
In 2010, Groupon moved into its headquarters at 600 W. Chicago Ave., becoming one of the largest tenants in the former Montgomery Ward catalog warehouse, leasing more than 300,000 square feet by January 2026. The entire area is listed for subletting.
In January, Groupon exercised an option to terminate its lease two years early, subjecting the company to a $9.6 million penalty, according to SEC filings.
Groupon’s River North headquarters was once the center of Chicago’s tech ecosystem.
Founded in 2008, Groupon has created its own e-commerce niche with heavily discounted daily deals on everything from manicures to food, emailed to subscribers.
The company employed more than 11,000 people 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 far more crowded and competitive digital marketplace.
Google tried to buy Groupon for $6 billion in 2010, but investors and co-founder Andrew Mason said it wasn’t a deal. In 2011, Groupon was worth $25 billion. The company went public in the fall, raising $700 million in the biggest tech IPO since Google.
The market cap is approximately $100 million at the close on Friday.