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Per Trefis estimates, 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 announced the acquisition of Presence AI in Aug 2019; no financial details were disclosed.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%.
We don't expect the acquisition to affect our existing forecast for Groupon's Total Revenue
Total revenue [c =a + b]
North America revenue [a]
International revenue [b]
Revenue growth in the U.S. is likely to be flat for 2019, with slow improvement in 2020.
2019 should see sustained improvement in International revenues, which is likely to extend into 2020.
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Prior to the acquisition, we expected Groupon's EBITDA margin to contract 20 bps y-o-y in 2019 and expand 100 bps in 2020
Note: Historical adjusted EBITDA figures are as reported by Groupon
Adjusted EBITDA [d = e X c]
Total revenue [c]
Adjusted EBITDA margin [e]
However, Presence AI's automated chatbots should streamline the customer service process - resulting in higher EBITDA margins
Adjusted EBITDA margin (post Presence AI) [g = e + f]
Increase in Adjusted EBITDA Margin due to Acquisition [f]
Adjusted EBITDA Margin (Pre-Acquisition) [e]
We anticipate a subdued 25 basis point increase in EBITDA margin in 2019 as benefits will accrue only for a part of the year. However, the gains should reflect fully in the 2020, which is why we expect a 125 basis point increase in EBITDA margin
This, in turn, points 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
Implied EV [l= h X k]
Adjusted EBITDA (post Presence AI) [h]
EV/EBITDA (Trefis estimates, post Presence AI) [k]
This represents a roughly $350 million increase in Groupon's valuation, or a 18% jump compared to our original estimate
Potential upside to value from Presence AI acquisition [= l / j - 1]
Implied EV (post acquisition) [l]
Implied EV (pre-acquisition) [j]
This means that as long as Groupon paid less than $350 million to acquire Presence AI, the deal will accrue to Groupon's investors.