Groupon Inc (GRPN) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to the Groupon fourth quarter 2011 financial results call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the Company's formal remarks.

(Operator Instructions)

Today's call is being recorded. For opening remarks, I would like to turn the call over to the Vice President of Investor Relations and Corporate Development Finance, Kartik Ramachandran. Please go ahead, sir.

Thank you. Hello and welcome to our fourth-quarter 2011 financial results conference call. Joining us today are Andrew Mason, our CEO, and Jason Child, our CFO. We will be available for questions after our prepared remarks. The following discussion and responses to your questions reflect Management's views as of today, February 8, 2012 only and will include forward-looking statements. Actual results may differ materially.

Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our Form S-1 that was filed on November 3 of 2011. During this call, we will discuss certain non-GAAP financial measures, in our press release and filings with the SEC, each of which is posted on our IR website, you will find additional disclosures resulting these non-GAAP measures, including reconciliations of these measures with GAAP. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2011. Now I will turn the call over to Andrew.

Thank you, Kartik. And thank you everybody for joining us today. 2011 was a phenomenal year for Groupon. At $1.6 billion in revenue, we grew nearly 420% this year. Well, of course, is just the portion is just the portion of sales that we keep after paying out our merchants. Our total sales, our gross billings, came in at over $4 billion this year, also up over 400%.

Q4 in particular was a milestone, as it was the first quarter in which we have generated operating profit since expanding internationally back in Q2 of 2010. Quarter-over-quarter, we also saw revenue accelerate by 18% to $506.5 million. Free cash flow nearly tripled to $155 million with earnings, not just working capital, contributing for the first time since early last year and accounting for nearly one-third of Q4 free cash flow.

These results, however, did not come at the expense of the investments that we are making in the future. First, we completed several technology acquisitions in the back half of last year that we expect to accelerate our strategic product road map. And during the year, we've increased our total technology headcount by more than four times. And to accommodate that headcount, we opened a new office in Palo Alto in Q4 that is focused on our technology operations.

This quarter, we grew not only are core Daily Deal business but we also grew Groupon Goods and Groupon Getaways, our travel partnership with Expedia. This further proves that Groupon is a brand that stands for more than just local for millions of customers around the world.

Groupon Goods, our product channel, featured over 125 different deals in Q4. Each of our top five deals averaged more than 25,000 units. On Groupon Getaways, our average hotel deal generates over 1,000 room nights for our hotel partners. We also launched several exciting new tools that deliver additional value for our merchant partners. Our new Merchant Center provides our merchants with an easier way to manage their campaigns, as well as to gather deep analytics on their promotions.

Groupon Scheduler it is a free, sophisticated, and easy-to-use bookings engine for merchants that they can use regardless of whether or not they have been featured on Groupon before. And Groupon Rewards is the easiest merchant loyalty program in the world. It allows the merchant's customers to earn rewards from their favorite businesses while paying with their normal credit cards. For merchants, Groupon Rewards helps drive more repeat business and helps to make Groupon customers our merchant partners' best customers.

Now since this is our first earnings call, I thought it would be worth spending a moment highlighting what these results confirm about our Business. There are several key drivers that helped us achieve operating profitability this quarter. Number one, is the strong repeat purchase behavior within our customer base. We've consistently seen that once a customer has been activated, their purchasing behavior is durable over time and, in turn, significantly reduces the incremental marketing cost to drive repeat purchases.

Second, while we are still investing aggressively in growth, our paid marketing continues to become more efficient. To put it in perspective, a year ago, our marketing expense was more than 100% of our revenue. This last quarter, it was down to about 30%.

Third, we continue to become more operationally excellent, which perhaps more than anything, determines success and failure in this industry. Let me give you one example of what that means. In Q4 we improved our lead time by about 24%.

Now what is lead time? Lead time is a internal metric that we use to measure the amount of time between when we've informed a merchant that they've been scheduled and their deal is actually featured. You're probably wondering why lead time matters. It turns out that it is an important leading indicator of merchant satisfaction and AIR rate and refund rate, which in turn are leading indicators of customer satisfaction. So, lead time in itself is one of many metrics. I just offer it as an example of the seemingly small details that go into offering a consistently great merchant and customer experience.

Going forward, our strategy remains to invest in the future. As proud as we are of the Business that we have built so far, we believe that the Groupon of five years from now, the Groupon that has become a daily habit for consumers and delivers against the larger local commerce opportunity, requires investments in technology and innovations made possible by the scale that we've achieved to date.

While Groupon is the clear market leader in online local commerce, we estimate that we still participate in less than 1% of total local transactions. And with $4 billion in gross billings after our third complete year of operations, our rapid growth is really more of a reflection of the enormous size and opportunity of the market segment than anything else.

So it is still the early days in this marketplace and in our mission and we are not going to stand still. In fact, we believe we are in the cusp of a sea change of consumer behavior. Five years from now, we believe the way in which consumers buy and sell locally will be radically changed by the proliferation of affordable Cloud-connected tablets and smart phones. Just as technology has changed the way we communicate, do business, and buy retail goods, we are about to see what technology can do for local commerce. Groupon, with its unparalleled foundation of consumer and merchant relationships, will drive that change.

There are plenty of reasons for us to be optimistic about the investments that we have made thus far. In just over six months since we launched Groupon Now, we've expanded to 31 markets and serve deals from nearly 20,000 merchants in North America. Our investments in creating merchant value are paying off as well, with more than half of the merchants interacting with one of the tools available in our new Merchant Center, including our ROI calculator, Groupon Rewards, and Groupon Scheduler.

Merchant partners using these tools report consistently higher satisfaction ratings than those who do not. Also, while we are still in the early days of personalized commerce, we're seeing extremely encouraging results with customers that have given us personalized information such as location and gender, showing higher engagement and satisfaction rates than those who do not. We will continue to invest aggressively in these and other related initiatives. With that, I'll hand it over to Jason to go through the numbers in a bit more detail and then we will go through some Q&A.

Thanks Andrew. I'll start with a review of our fourth quarter and full year 2011 financial results and will share our current expectations for the first quarter of 2012. We'll then take a few questions.

Fourth quarter operating cash flow increased 226% to $169.1 million. Fourth quarter free cash flow increased 258% to $155.1 million. For the fourth quarter, worldwide gross billings, which is the total amount spent by customers on Groupons, grew year-over-year 201% to $1.25 billion.

Fourth quarter worldwide revenue, which is defined as the portion of gross billings that we keep after paying our merchants, grew 194% year-over-year to $506.5 million. This implies that we are entering 2012 with an annualized run rate in excess of $2 billion. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates throughout the quarter was $3.5 million or 69 basis points.

Fourth quarter gross billings and revenue were reflective of strong growth in our Daily Deals business and in our new travel, entertainment, and e-commerce channels. Strength in Daily Deals was reflected in part by the increase in revenue margin or revenue as a percentage of gross billings on a quarter-over-quarter basis. As Andrew mentioned, we also saw a lift in seasonal gifting related purchases largely driven through our second annual Grouponicus holiday seasonal promotion.

The promotion was served to just 40 North American markets with local deals, travel deals, and good chosen specifically for their giftability. The success of Grouponicus opens the opportunity for us to roll out additional occasion-themed promotions during the course of the year. We have not yet announced similar initiatives for 2012 beyond our Valentine's promotion but we are evaluating several possibilities and are working closely with our merchant partners to optimize our occasion campaign plans.

For the full year, worldwide gross billings grew 437% to $4.0 billion. 2011 worldwide revenue grew 419% to $1.62 billion. The favorable impact on revenue from year-over-year exchange and foreign exchange rates throughout the year was $43.4 million or 267 basis points. Trailing 12-month operating cash flow increased 234% to $290.5 million. Trailing 12-month free cash flow increased 242% to $246.6 million.

Now I will discuss our operating expenses excluding stock-based compensation. Cost of revenue for the fourth quarter was $87.3 million or 17% of revenue, up 260 basis points year-over-year. The increase in cost as a percentage of revenue was largely driven by growth in our editorial and technology headcount costs.

Marketing in the fourth quarter was $156.5 million, down 22% in absolute dollars year-over-year and down 8% from third quarter. We continue to realize significant efficiencies in our marketing investments. Improved execution, word-of-mouth customer marketing benefits, and mix shift from subscriber acquisition spend to market connected directly to revenue generation are all contributors to the improvement.

As of December 31, 2011, subscriber acquisitions still comprises the primary portion of our marketing spend. This is particularly true in less mature International markets where we are still in the early phases of building out our subscriber footprint. As those markets mature and as we optimize our transactional advertising spend in more developed markets, we expect to realize further leverage on the marketing line.

Selling, general, and administrative costs in the fourth quarter totaled $247.4 million or 49% of revenue, down from 68% in the prior-year period. The productivity of our sales force continues to improve as we refine our sales management and selling processes and as we introduce new products and services, facilitating deeper customer and merchant engagement. You can expect to see us continue to invest aggressively in people and technology, the benefits of which will be reflected over a long period of time in our financials.

Fourth-quarter consolidated statement operating income, or CSOI, which includes stock-based compensation and expenses related to acquisitions was $48 million. This compares to a loss of $143.4 million in the fourth quarter of 2010. Of the $49.7 million improvement in CSOI versus third quarter, only $13.9 million was related to our ability to reduce marketing costs and realize greater efficiencies. Also absorbed into the $48 million of CSOI for the quarter were roughly $40 million in operating losses incurred principally in less mature countries within the International segment.

Unlike CSOI, our GAAP operating income or loss does include stock-based compensation expense and acquisition related expenses. Fourth-quarter GAAP operating income improved to $15 million from a loss of $336.1 million in the fourth quarter of 2010. The favorable impact on operating income from the year-over-year changes in foreign exchange rates throughout the quarter was $11.6 million.

Fourth quarter net loss attributable to common shareholders was $42.3 million or $0.08 per share compared to a loss of $378.6 million and $1.08 per share in Q4 2010. Our net loss includes income tax expense of $34.8 million in Q4. This includes tax related to profitability in certain International countries, as well as charges related to the establishment of our international headquarters in Switzerland. Primarily as a result of these charges, our effective tax rate for the quarter was well beyond our current average statutory rate of approximately 33%. We expect our effective tax rate to decline over time.

Pro forma EPS loss for the quarter was minus $0.02, adjusting for stock-based compensation and acquisition related expenses. Our effective tax rate for Q4 was negative 1,561%, which certainly makes us a good corporate citizen, but is not indicative of a long-term trend. Total income tax was approximately $0.07 per share, of which the charges related to the establishment of our International Headquarters in Switzerland represented approximately $0.03 per share.

For the full year 2011, cost of revenue was $249.9 million or 15% of revenue up 170 basis points year-over-year. Full-year 2011 marketing was $769.6 million or 48% of revenue compared with 93% in 2010. Selling, general, and administrative cost totaled $813 million for the year or 50% of revenue versus 63% in the prior-year period. We realized improved leverage on our SG&A despite increasing our total headcount from 4,457 to 11,471 during the year, the majority of the investment concentrated in our global sales force.

Full year consolidated statement operating loss was $114.3 million. This compares to a loss of $181 million in 2010. Full-year GAAP operating loss improved to $203.4 million from a loss of $420.3 million in 2010. The unfavorable impact on operating income from year-over-year changes in foreign exchange rates throughout the year was $9.8 million.

Our 2011 income tax expense was $44.3 million. 2011 full year GAAP net loss was $350.8 million or $0.97 per share compared to a loss of four $456.3 million and $1.33 per share in Q4 2010. Pro forma net loss attributable to common shareholders for the full year increased to a loss of $261.8 million or a loss of $0.72 a share from a prior-year net loss attributable to common stockholders of $217 million or a loss of $0.63 per share.

Now I will briefly cover our segment results and a few balance sheet items before closing with a look forward to the first quarter of 2012. Note that we do not allocate our stock-based compensation or acquisition-related expense items to our segments.

In the fourth quarter, North America segment revenue grew 113% year-over-year to $188.5 million. North America segment operating income improved to $35.8 million from a loss of $21.9 million in fourth quarter 2010. International segment revenue grew 279% year-over-year in the fourth to $318 million. Adjusting for the $3.5 million year-over-year impact of foreign exchange, revenue growth was 283%. International segment operating income improved to $12.2 million from a loss of $121.5 million in fourth quarter 2010.

The favorable impact on operating income from year-over-year changes in foreign exchange rates throughout the quarter was $11.6 million. In 2010, North America statement revenue grew 221% year-over-year to $643.8 million. North American segment operating income improved to $22.3 million from a loss of $10.4 million in 2010. 2011 International segment revenue grew 772% in 2011 versus a partial year of operations in 2010 to $980.9 million.

Adjusting for the $43.4 million year-over-year impact of foreign exchange, revenue growth was 733%. International segment operating loss improved to $136.7 million from a loss of $170.6 million in the eight months of International operations in 2010. The favorable impact on operating income from year-over-year changes in foreign exchange rates throughout the year was $9.8 million.

Turning to the balance sheet. As of December 31, 2011, cash and marketable securities increased to $1.1 billion year-over-year from $119 million. Total accounts payable, including our accrued merchants payable, increased 153% to $557.3 million. Total accounts payable decreased to 68 from 82 days in the prior year. On a sequential basis, AP days increase from 63 to 68 versus Q3.

Despite the move up in AP days this quarter, we expect to continue bringing our total accounts payable down to be closer in line with our North America Business over time as our International markets mature. As AP days compress over time, and as we realized continued improvement in operating leverage, composition of free cash flow should shift increasingly to earnings and migrate away from the flow provided by our merchant payables.

As such, CSOI will more closely approximate free cash flow over time. We fully expect that cash generated through Business operations in the foreseeable future, combined with the cash we now have on the balance sheet, will provide ample resources to fuel any growth initiatives we currently have in plan or may anticipate in the near term.

Our Q4 2011 capital expenditures were $14 million. Full year capital expenditures came in at $43.8 million. In Q4 2010 and full-year 2010 respectively, CapEx totaled $8.6 million and $14.7 million. The increase in capital expenditures reflects additional investments in technology, as we continue our long-term orientation and aggressive approach towards investing in the future.

Outlook. I'm going to conclude my portion of today's call with our outlook. Incorporated in this Outlook are the trends that we've seen to date in Q1. Our results are inherently unpredictable and may be materially affected by many factors, including a high level of uncertainty surrounding exchange rate fluctuation, as well as the global economy and consumer spending. It is not possible to accurately predict demand and therefore actual results could differ materially from our guidance.

Our Outlook further assumes that we do not conclude any additional business acquisitions or investments, record any further revisions to stock-based compensation estimates, and that foreign exchange rates remain approximately where they have been recently. For Q1 2012, we expect revenue between $510 million and $550 million or between 73% to 86% year-over-year growth, and between 1% and 11% quarter-over-quarter growth.

We expect first quarter GAAP operating income to be between $15 million and $35 million of income as compared to an operating loss of $117.2 million in the first quarter of 2011. This outlook includes approximately $35 million for stock-based compensation expense. We do not anticipate any acquisition-related expenses for the quarter. We anticipate consolidated statement operating income, which excludes stock-based compensation and acquisition-related expenses, to be between $50 million and $70 million, as compared to a first quarter of 2011 consolidated segment operating loss of $98.3 million.

Before we turn it over to questions, I will hand it back over to Andrew for closing comments.

Thank you, Jason, and thank you everyone for your time today. We're very excited about what we're building and look forward to sharing our progress with you in the years to come. So why don't we now take a few questions with the time we have left. Kartik?

Great. Why don't we go right to questions? Thanks a lot.

(Operator Instructions)

Our first questions comes from Scott Devitt with Morgan Stanley. Your line is open.

Hello. Thanks. Andrew, as you have seen the competitive landscape shift to your favor over the past, say, three to five months, with other sites closing and then your market share actually growing, relative to those that remain, I was just wondering how that's impacting your decisions around the pace of investments in your own Business, particularly as it relates to marketing spend, if at all, and then I had one follow-up?

Well, historically, we haven't made decisions based on the behavior or share of our competitors. So, while we are encouraged by developments in the marketplace, we continue to operate against our own strategic road map rather than be influenced by the behaviors of competitors.

Okay and then secondly, maybe for Jason. Given the relative size of Now, Goods, and Getaways all being small relative to the Deals business and the fact that they have lower take rates, I was just wondering if you could talk a little bit more about the higher take rate that you reported in the quarter. Is it better international take on the Deals business, is it just too early to see the impact of the newer businesses, or something else? Thanks.

I'll take that one as well, Scott. We encourage people to focus on net revenue, as we've said historically. We think it is the stronger indicator of our Business. There is a lot of noise that goes into take rates, where they will go up or down quarter-over-quarter, depending on the deal mix in these new categories, depending on the maturity of these new categories, things like breakage, et cetera. So we think that we internally are focused on net revenue as a gauge of our performance along with free cash flow and CSOI and we encourage you to look at the same.

Thanks.

Thank you. Our next question comes from Ralph Schackart with William Blair. Your line is open.

Good afternoon. Maybe I'll start with Jason. Jason, can you give us a little bit more color on the tax in the quarter, 1600%. I think you talked about it declining over time, but just give us a sense of this one time and how should we think about it going forward?

Sure, so I guess I would break it into two pieces. So, the total tax expense was about $0.07. Of the $0.07 about $0.03 relates to the establishment of our international headquarters in Switzerland. That likely, there will be charges related to that over at least the next couple of quarters as we kind of complete that migration and the establishment of the headquarters. And so it will be a bit lumpy. We are in a position where we are in a positive tax position in a number of our foreign entities. Over time, we do expect that as all of our countries are profitable, you will see an effective tax rate that is going to be closer to that low 30%s ETR that I mentioned in the release. I think the main thing also is that we pointed out that we did have $40 million of losses in a number of our early stage countries so if you kind of back that out and then you use a higher CSOI number, the tax doesn't look quite as crazy and so again you're kind of just almost combining a bunch of different countries that all pay tax locally. Again, that will be changing as we established this headquarters over the next, I would say, later this year.

Great. One more if I could, Jason. You talked on the call about $40 million of operating losses in less mature countries. Can you give us a sense how that trended over the last couple of quarters and have you seen in other markets that you've launched throughout the operating history at Groupon?

Yes, I mean, I think the first thing I would point you to is our oldest and most mature market, of course, is the US. And there, we actually made about $35 million in Q4 at about a 19% operating or CSOI margins and yet still continue to show strong growth, in fact accelerating from last quarter. So, what I would say is that that's kind of where we -- that's kind of the model for how we want all of our countries to look. The total, to your question, the total loss, what that was in the past. We did say that loss was, I think it was around $50 million to $55 million last quarter and that was isolated, actually, I think we said last quarter to four countries. And so we're not being quite as specific this time. It's certainly come down a little bit since then. You should expect that we will continue making progress throughout the, I'd say, the balance of the next year or so and really get to a point where I think all of the regions and all of the countries should be profitable sometime in the next year or two.

Great. Thank you very much.

Thank you. The next question from Heath Terry with Goldman Sachs. Your line is open.

Great. Thanks. Andrew, you know, I was wondering if you could give us a sense. That technology headcount increasing by four times, what would you say your highest priorities are for that additional tech headcount and to what degree do you expect that pace of hiring to continue? And then I have a follow-up.

Thanks for the question. So, we -- that headcount is to support existing initiatives that you can see today like Groupon Goods and Groupon Getaways, as well on Groupon Now, Groupon Rewards. Many of these newer products that we have launched are more technologically complex. Rewards, for example, taps into the credit card and debit card transaction flow of local merchants in order to allow their customers to accumulate rewards using their normal credit card that they have on file with Groupon. So, it is pretty remarkable, magical stuff that we think is going to create a more comprehensive marketing suite for our merchant partners and more value for consumers. But it obviously takes deeper investments. We are still far under-indexed in terms of our technology headcount compared to traditional California-based technology companies. So we expect to continue to invest aggressively in adding additional headcount but nothing -- including in initiatives that we have yet to announce.

Great, and then I was wondering if you could give us a sense of the early impact that you are seeing in the personalization of Deals on the website and what the road map looks like for rolling out personalization to the e-mail list and to Groupon Now?

Sure, I'd love to. Like I said, we see -- right now, the personalization that we are doing is around a user's location. You can now enter multiple locations -- your home address, your work address, any additional addresses. Your gender, past buying behavior, and some other things. It is smart enough to know the difference between consumer behavior and consumer traveling behavior in New York and St. Louis. So we are making incremental improvements every quarter. A few things that we'll be rolling out this quarter or in Q2, depending on how the testing goes, are a thumbs-up, thumbs-downs mechanism to allow people to say please stop sending me pole dancing lesson deals and that has been a much requested feature. As well as a really nice personalization wizard that allows us to collect the fundamental information we need to improve a user's experience. We will also be, right now the personalization has only been in the US. Our general approach with innovation has been to cultivate it in one market, get everything right before rolling it out into additional countries. We now feel that we are ready to do that and are going to be beginning to test personalization in Europe later this quarter.

Great. Thanks, Andrew, and you can definitely keep sending the pole dancing e-mails. I'm okay with that.

All right.

Thank you. Our next question comes from Spencer Wang with Credit Suisse. Your line is open.

Thanks. Good afternoon. I guess a question for Andrew on Groupon Now. As you've roll out Now across the 31 markets in North America, I was wondering if you could share any sort of metrics or data points with respect to how it is impacted purchase frequency among your customer base or maybe customer activation or subscriber return? And any thoughts on when you would roll that out internationally? Thanks.

Thank you. So, I can tell you that our customers who have purchased a Now deal are our better customers that spend more in general on Groupon once they have made their first Now purchase. We are happy with what we are seeing with Groupon Now. Everything is on track and we plan to roll it out to additional markets in the US as well as markets in the UK either later in Q1 or Q2.

Great. Thanks a lot.

Thank you. Our next question comes from Jason Maynard with Wells Fargo. Your line is open.

All right. Good afternoon, guys. Congrats. First question for you Andrew, kind of interesting this quarter in terms of the improved marketing efficiency. And I'd love to get your commentary here around how do you see that playing out the next 6, 12 months especially considering that you have scale in so many markets relative to your competitors? Maybe start with that and I got a follow-up for Jason.

Well I think part of what we are seeing is just getting -- there is a lot of stuff that we are doing to get smarter in how we do marketing. Just to give you one example where we are investing more in transactional marketing than we once did, marketing that is designed to drive purchases and not just new subscribers. So I think that is driving the cost of customer acquisition down. At the same time, Groupon is, with the introduction of Goods, with the introduction of Travel, with the introduction of Groupon Now, with better personalization, it's just every day becoming a cooler product that more and more consumers love. And I think that is driving an increased percentage -- we see that even as our rate of -- our absolute number of acquired paid customers stays constant or increases quarter-over-quarter, the percentage of organically acquired customers continues to improve. And I think it is just a result of all the investments that we are making and making a better service.

Great, and then for Jason, in terms of the Q1 guidance, I'm curious how should we think about the contribution of some of these newer products and ramping in certain international markets in terms of contributing to that number? And any color you can maybe offer in terms of how that -- how we should plan or think about that throughout the rest of the year?

Yes, I think, I mean the categories that we have launched, as well as Now, over the last three to six months are still just very early stage and so from my perspective, I wanted to give out guidance that is, I think, kid of reflects all of the stuff that we do and don't know. What we do know is we saw some seasonal impact of Grouponicus. We don't know what we will see going forward on other seasonal impacts of things like Valentine's Day or other holidays that lend themselves to gifting that seem -- do look like they could be a big benefit for us. So we are learning about seasonality, we are -- we don't know about all the kind of uncertainty in macroeconomic climate, that kind of stuff. I mean, overall, we do think that there is certainly a huge opportunity, as Andrew said before, we have less than 1% of local transactions today, so I think we've put out guidance that we think is reasonable based on the performance that we just saw and we will just have to -- you'll have to stay tuned and we will keep you updated as the quarters progress on some of these new initiatives.

Great. Thank you very much.

Thank you. The next question in queue comes from Justin Post with Merrill Lynch. Your line is open.

Thank you. Two questions. First can you talk about the merchant satisfaction levels as measured by repeat rates? Are you seeing any -- where are they maybe and are you seeing any trend up or down there? And the second question, is there any empirical evidence or anything you're seeing on the marketing investment, you been able to really pull that back, has that affected, in your opinion, number of Groupons sold or any facets of your business and do you still think you can see a lot of leverage on that line as we look into 2012? Thank you.

Thank you for the question. We talked in Q4, we talked about our Q3 percentage of merchants that we had featured who had been featured on Groupon in previous quarters and the number was more than half. And we've seen that number increase again in Q4. So, we're very happy by those numbers and by the experience that the vast majority of our merchants repeat. Nielsen recently came out with a survey where they found that 3 out of 4 people that use a Groupon to bring a friend with them; 9 out of 10 people spend more than the value of the Groupon. Another example that I thought was really exciting is we partnered with Lionsgate to do a Groupon around the film, One for the Money, and they did some surveying and found that for every person -- they surveyed all the people that came to the movie that heard about the Groupon and only one out of three of them had actually bought on Groupon.

So for every person that bought the deal, there were two people that just came via the word-of-mouth that the promotion generated. And that those people that did by the deal, only 93% sought because -- or excuse me, the opposite of only, it is a really large number, that 93% bought because of the deal, only 7% would have gone anyway. So, the vast majority of the purchases generated by the Groupon were customers that they wouldn't have received anyway. It was all incremental. So that is the kind of data that gets us really excited about the merchant value proposition that we are offering to hundreds of thousands of merchants every day.

And then on the marketing investment affecting growth and your outlook for marketing spend in '12?

Yes. So, no, we haven't seen any negative impact. Largely when we've cut down our marketing spend, it hasn't come at the cost of cutting down at the expense of reducing the number of paid customers that we are attracting. What we do is we've been -- we've done a better job at targeting higher-quality subscribers who are more like me to convert into customers.

Great. Thank you.

Thank you. Next question in queue is from Mark May with Barclays Capital. Your line is open.

Thanks for taking my questions. I had two. I guess I'll ask the other side of that questions on the consumer proposition. How do you -- I don't think that you are currently accepting or allowing reviews on the site. So I wondered if you could talk a little bit about how you're measuring customer satisfaction? What that is telling you? Maybe if you could share a little bit about repeat usage on the consumer side of the business? And then second question has to do with the international operations and the losses that you referenced earlier. Can you help us think through a little bit around the potential margin profile of all of those markets in aggregate as you report them. What might be the differences between the US business and how we should be thinking about the margin profile longer-term? Thanks.

Thanks for the question. I'll take the first one around how we measure customer satisfaction. I'll let Jason take the second. So actually, we do collect feedback from consumers. We just started doing this about, I believe, four, five months ago. So anytime you redeem a Groupon, you'll get an e-mail asking how was your experience. And we are seeing really high engagement rates with those e-mails. And so we are basically collecting reviews of these experiences that the customers are having. That allows us to flag anything that is exceptionally good or exceptionally poor. And gives us a pretty good constant real-time pulse of how we are doing. On top of that, just as we do with our merchants, we survey our customers frequently and on top of that more qualitative data we look at the engagement rates. We look at the cohort behavior of customers who have bought in the past or who had signed up in the past and look at their repeat purchasing behavior. And just as we kind of highlighted in the roadshow, the trends continue where all past cohorts continued to purchase at the same rate in Q4 that they did in prior quarters. So just use the one example that we used in the roadshow, which was the Q2 2010 cohort, that first quarter those customers spent about $6 million. Then $8 million, $7 million, $8 million, $7 million, $7 million in Q3 and now in Q4, $8 million again, and that is indicative of all the other consumer cohorts.

That is really helpful, thanks.

Okay, I think Mark, your other question was on the difference between US and international revenue margins, is that right?

Yes and how we as we look out further, I think you talked about a 12 to 18 months time frame for breakeven or profitability, looking even further out, how might that segment look from a margin profile vis-a -vis the US segment?

Okay let me clarify the statement I made earlier. The statement I made earlier was on some of the early, I call them, less mature countries that are losing money, when will they be making money? I think that was more the time line you should expect everyone to make money. From a consolidated statement operating income perspective we are actually profitable in the US and all of international today. So, with regards to take rates or revenue margin, you should think of them as being extremely similar. I mean, we are basically using the same play book or the same kind of deal factory and processes that Andrew talked a little bit about. We are following kind of our, a shared best practices approach and so we are structuring deals very similar and we find in general, the open rate, the conversion rate, the merchant acceptance, they are all very, very similar. So you should not think of the revenue margins being different really between--

I think the question is the operating margin for international today is lower than in the US and is there anything structurally different about those markets that would prevent them from having operating margins that are akin to the US over time?

There's a couple of exceptions where you have a country like China, but China is not in the international segment, they are actually, that's a joint venture below the line and there's a few exceptions but on average, you should assume that international is very similar. I mean, for example, if you back that $40 million out of the international CSOI you get to numbers that are not that dissimilar from the US 19% operating margin today. So I think it is just -- the point I gave out before was, to call it, at this point I would say somewhere in the next 12 to 18 months, we'll see -- we are still a very high growth Company that makes these estimates need to have a little wider range but somewhere in that timeframe that you should probably see the US and international, North America and international, be converging on the CSOI margins.

Thanks a lot.

Thanks, Mark.

Thank you. Our next question is from Ross Sandler with RBC Capital Markets.

I think I just -- I've got three quick questions. First, Andrew, when you guys roll out new merchant products like the Merchant Center dashboard, can you talk about what kind of increased, I guess repeat frequency you see on the merchant side from these new products. And the second question for Jason, follow-up on the marketing comment earlier. So as you roll out these targeted marketing programs that are going directly to Deals versus from the marketing you had done earlier on acquiring e-mails, how does the [repeat] out -- how do the economics change in terms of your marketing expense as a percent of revenue as that becomes a bigger percent of the total versus where you are today at like 31%? And then last question is just housekeeping, the share count was below what we were looking for. Can you talk about what is going on with the diluted share count? Thanks.

So, to answer your first question, the repeat frequency of a Groupon merchant, this isn't an actual stat, but just the average restaurant is thinking about running maybe a couple of times a year at most. So, these are all merchant features that we have rolled out in the last three months or so. So, it is far too early to tell what the long-term impact is going to be. On top of that, many of them, like Rewards, we've only rolled out in Philadelphia. So these things are still in the early stages. However, the leading indicators of repeat feature rates such as merchant satisfaction are all telling us that we should expect increased engagement with these merchants. All these things are about building, transforming our relationship with merchants from a one-and-done deal event into something that is longer-term and we are very confident that these tools will take us along that path. Jason?

Sure, so, first on the, just I'll knock out the share count one quickly. So, in Q4, because of the IPO, you saw the weighted average share count, you really only saw a little less than two out of the three months that had kind of the full share count included. So you'll see that be normalized and go up over the 600 million number that you probably expected in Q1. Okay, so that is first. Second, on marketing, I guess what I would say is you should first assume that 31% marketing as a percentage of revenue is not being anywhere close to steady state. So as Andrew said, it has come down from well over 100%, it was 160% and [170]% in Q4 of last year and been coming down steadily ever since. And that is basically because the actual spend has been coming down a little bit, but overall, we went from, we're at an annualized run rate of somewhere between $600 million and $700 million and that is an amount that we are comfortable with and we think gives us a lot of opportunity to spend in a variety of ways.

So today, it has been primarily, or else through today, it's been primarily subscriber acquisition spend. As we start to continue to focus on the highest ROI, today we measure the ROI primarily on cost per new customer. You'll see us start to experiment and do more revenue driving transactions which you would see in more typical e-commerce companies. We don't necessarily think we need to be spending more money, we just think that we will be able to shift some of that spend, because every quarter there is a smaller pool of subscribers to go after because of the relatively large penetration that we're going to hit in some of our more mature markets. So, anyway, so you should overall think that marketing will continue to go down as a percentage. Whether it gets down to the, what is it, 5% or 10% that you see for Amazons our Netflix or those types of guys, that's probably going to -- it's not going to be -- it's going to take a little while, but again, I would not expect it to be increasing as a percentage of revenue.

Thanks, guys.

Thanks.

Thank you. The next question is from Mark Mahaney with Citi. Your line is open.

Thanks. I know it's still relatively early days but in terms of the newer areas like Goods and Getaways and Groupon Now. Could you quantify what kind of impact you've seen or maybe talk about the kind of acceptance, at least qualitative acceptance you've seen from both merchants and from consumers for those newer products? Thanks.

Thanks, Mark. What we can tell you is just that we feel great about how well the assets that we have acquired over the last three years of building a local commerce business have translated into these new spaces. That means the operational infrastructure we've built, a lot of the competencies and the operational excellence of the staff and the sales force here, as well as the consumer base, who we've learned really think of Groupon as a place where they can go to find consistently high-quality, unbeatable deals on all kinds of things. And that is what that Groupon brand stands for these customers. It's just, I mean, one thing that shocked us was the relatively high percentage the first week that we launched Groupon Getaways of purchases that came from mobile devices. Where people are just looking on their little four inch screens at a picture of a hotel and spending $300 or $400 just because of the trust that they have with the Groupon brand. That we've established and invested in through the local business over the last three years. So, we think -- we're very excited. We still don't feel like we know enough about where the businesses are headed to give you clear guidance on how they will contribute to the overall financial picture, but as we have said at various points on this call, we're continuing to invest and we're bullish about those businesses.

Thank you, Andrew.

Thank you. I show we have time for one further question. Shawn Milne with Janney Capital Markets. Your line is open.

Great and thanks for taking my question. I wondered if I could go back to that last question and I know you don't want to quantify the impact, but Jason, maybe, can you frame up a little bit more how you think about Getaways and Goods into the first quarter guidance and do you expect at least in the Getaway product to expand out beyond your current relationship and really broaden out that product going forward? Thanks.

Yes, well I guess I'd say first, in terms of broadening the product, I mean it is in partnership with Expedia but we actually source a large percentage of the deals with our own travel sales force. And so you should already assume that it is, I guess, broadening to that, at least from a sales perspective. You should expect to see us probably add more features and just further develop the product in terms of today it does really well with hotels' rooms but over time it could be even more. But I think in terms of Q1, I wouldn't -- I would just assume that we're very happy with the progress, we're not seeing, I mean, we did in the first quarter, you can assume that when you are launching a category, you're probably having to make maybe some investments in some of your -- the commission rates to be able to get deals. And over time, that investment, it lessens, and so I think in terms of, but in terms of Q1, how much of Q1 Goods or Getaways is going to be as a percentage, we're not going to disclose that at this time, it is just too competitive of categories for us and so we just want to not kind of specify them at this time.

Okay and just lastly, I may have missed it, did you give out any expectations for what you thought CapEx would look like for the year?

No we did not. We did step up CapEx in Q3 which was largely related to -- we built up our tech team to a sizable enough level to where you did see the impact of capitalized software come into play and we did actually also open a data center and so I would say that the levels you saw in Q4 are kind of reasonable in terms of what we expect to see in the near term. And then we will let you know when we see something. You won't see, I would say, sizable shifts from the Q4 level.

Okay. Great. Thank you very much.

Thank you and I'd like to turn the program back to our presenters for any concluding remarks.

Thanks guys, this was a lot of fun. Look forward to many more of these.

Thank you. And ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may now disconnect.