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Groupon's Presence AI Acquisition Is A Good Deal If It Didn't Cost More Than $350 Million

Groupon (NASDAQ:GRPN) recently announced plans to acquire Presence AI, with financial details of the deal remaining undisclosed. Trefis quantifies how Groupon can benefit from the Presence AI acquisition in an interactive dashboard, parts of which are highlighted below. We estimate that the deal increases the value of Groupon’s stock by an estimated $350 million. Hence, the benefits of the acquisition will accrue to Groupon’s shareholders as long as the company paid less than this figure for Presence AI.

You can modify any of the key drivers in the interactive dashboard to visualize the impact of changes on Groupon’s stock price. Additionally, you can see all of our Internet and Technology company data here.

Presence AI’s chatbot technology could meaningfully improve Groupon’s margins

  • Presence AI offers automated voice and chat solutions for merchants to improve customer experience while booking for services.
  • Groupon’s rationale for buying Presence AI appears to be to reduce the friction in the customer ordering process.
  • Considering that Groupon is still to complete its transition from a discount company to a marketplace, catalyzing the improvement of user experience can potentially pay the company rich dividends.
  • We estimate that Groupon’s adjusted EBITDA margin could increase by 25 bps in 2019 and 125 bps in 2020 over our existing estimates purely due to the acquisition and integration of Presence AI.
  • The resulting uptick in EBITDA should lead to an increase in Groupon’s estimated value by 18%.

How Groupon’s Core Business Stands To Benefit From Presence AI

  • Revenue growth in the U.S. is likely to be flat for 2019, with slow improvement in 2020.
  • 2019 could see sustained improvement in International revenues, which could further extend into 2020.
  • Per Trefis estimates, 2019 is likely to see revenue decline bottom out for Groupon’s U.S. division and also for the overall company.
  • Groupon’s management also expects y-o-y unit growth to revive in the second half of 2019, with user losses beginning to moderate in 2020.
  • Also, considering management focus on letting go of lower value customers to focus on higher frequency users with the launch of Select (a subscription service), we think Presence AI can help to reduce friction and thus increase the ordering frequency on Groupon’s platform.
  • Groupon has also maintained that services such as health and beauty bookings have higher margins, which can directly benefit from Presence AI. Thus, the acquisition is likely to play well into enhancing the margin profile of the company.
  • Presence AI’s automated chatbots could reduce friction, thus increasing the frequency of bookings. This is likely to result in higher EBITDA margins.

What The EBITDA Margin Benefit Means For Groupon’s Stock Price

  • Prior to the acquisition, we maintained a valuation of $2 billion for Groupon based on our original forecasts.
  • However, Presence AI’s automated chatbots should streamline the customer service process – resulting in higher EBITDA margins
  • The expected reduction in costs points to an increase in our EBITDA forecast for 2020 from $303 million in the pre-acquisition case to $338 million purely due to the Presence AI acquisition
  • This, in turn, works out to an increase in Groupon’s valuation to $2.36 billion due to a combination of higher EBITDA and a small nudge to the EV/EBITDA from improved profitability
  • This represents a roughly $350 million increase in Groupon’s valuation, or an 18% jump compared to our original estimate
  • This means that as long as Groupon paid less than $350 million to acquire Presence AI, the deal will accrue to Groupon’s investors.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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