Good day, everyone, and welcome to Groupon's Fourth Quarter and Full-Year 2018 Financial Results Conference Call. [Operator Instructions] And today's conference call is being recorded. For opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Heather Davis. Please go ahead..

Good morning, and welcome to Groupon's Fourth Quarter 2018 Financial Results Conference Call. On the call today are CEO, Rich Williams; and CFO, Mike Randolfi. The following discussion and responses to your questions reflect management's view as of today, February 13, 2019 only and will include forward-looking statements.

Actual results may differ materially from those expressed or implied in our forward-looking statements. Additional information about risks and other 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 10-K.

We encourage investors to use our Investor Relations website at investor.groupon.com as a way of easily finding information about the Company.

Groupon promptly makes available on this website the reports that the Company files or furnishes with the SEC, corporate governance information, our quarterly stockholder letter and select press releases and social media postings.

On the call today, we will also discuss the following non-GAAP financial measures, adjusted EBITDA, FX-neutral results and free cash flow.

In our press release and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures with U.S. GAAP.

As we discuss our results during this call, note that all comparisons, unless otherwise stated, refer to year-over-year growth as reported. All gross profit comparisons are FX neutral, with the exception of gross profit per customer, which are as reported. And with that, I'm happy to turn the call over to Rich..

Thanks Heather. And thanks to everyone for joining our quarterly conference call. We look forward to discussing our results and taking your questions. Hopefully everyone's had the opportunity to read our quarterly letter to stockholders, which we posted yesterday on our Investor Relations site.

It contains a thorough discussion of our 2018 results, as well as our 2019 strategy. With that, I'll hand the call over to Mike for some additional color and then we'll take some questions..

Thanks Rich. Adjusted EBITDA in the fourth quarter of $105 million was flat compared to the prior year. For the full year 2018, adjusted EBITDA of $270 million is up 8%. In Q4, we generated gross profit of $366 million, lower than anticipated, driven by our international Goods business.

In North America, gross profit was $248 million, down $17 million or 7%. While North America performance was disappointing, it was largely in line with our expectations, given traffic headwinds we discussed on our last earnings call. Q4 North America local gross profit was $180 million, down $17 million or 9%, as we continue to see traffic headwinds.

Q4 North America Goods gross profit was $56 million, up $1 million or 2%, as we continue to optimize for long-term gross profit generation. In total, gross profit per customer for Q4 on a trailing 12-month basis in North America was $29.13, up 3% versus the prior-year period, highlighting the continued benefit of our customer segmentation efforts.

Turning to International, we added 165,000 net new customers and generated International gross profit of $118 million for the fourth quarter, up $1 million or 1%, highlighting the quality of our International customer base. Including new additions, International Q4 gross profit per customer on a trailing 12-month basis was $24.46, up 1% as reported.

Q4 International local gross profit was $80 million, up $7 million or 9%. In International Goods, we were aggressive with pricing and promotions to drive demand across the platform in a highly competitive holiday season.

With that, we saw increases in International Goods units, which were offset by lower margins and resulted in International Goods gross profit down $5 million year-over-year. In the fourth quarter, on a consolidated basis, marketing expense was $110 million, down $3 million or 2%. In North America, Q4 marketing expense was down $7 million.

Our continued refined customer segmentation, along with lower traffic, contributed to the 800,000 North America customer decline this quarter. In International, Q4 marketing was up $4 million or 13%, as we continue to invest in customer acquisition and brand.

SG&A for the fourth quarter was $195 million, down $30 million or 13% due to our ongoing efficiency efforts and lower performance-based compensation. During the fourth quarter, we repurchased 3.3 million shares for $10 million, ending the quarter with $290 million remaining on our share repurchase authorization.

As of December 31, 2018, we had $841 million in cash, in addition to our $250 million undrawn revolver. Free cash flow, excluding the impact of the IBM settlement for 2018, was $163 million, more than double that of 2017's free cash flow of $71 million.

For 2019, we expect that traffic headwinds will continue, while at the same time, we are building towards the next generation of Groupon, focused on increased convenience and leveraging of our platform. As you've come to expect, we will remain disciplined operators and fully intend to continue our rigor around expenses.

We anticipate that 2019 revenue will be approximately $2.4 billion. We expect the current customer trends in North America will continue in 2019 and increases in gross profit per customer should offset a meaningful portion of that customer decline. We continue to expect to grow our International customer base this year.

On a consolidated basis, we anticipate slightly lower gross profit for 2019 with the declines concentrated mostly in the beginning of the year, and with marketing and SG&A leverage mostly offsetting lower gross profit, our adjusted EBITDA expectation for the year is approximately $270 million.

We anticipate our investments in conversion and marketplace will help drive increases in gross profit per customer and coupled with continued cost control, we project 2020 adjusted EBITDA of $300 million or more.

For the first quarter, our outlook for revenue is around $550 million, we expect gross profit to be in the mid-290s and adjusted EBITDA of approximately $30 million. With that, let's open the call to questions..

[Operator Instructions] Your first question comes from Ygal Arounian from Wedbush Securities. Ygal, your line is open..

I'll ask my first and follow-up question at the same time. So, first, with 2019, obviously being a step-up in your investment, a lot of it revolving around the - improving the product and changing the product, there was no real specific mention around marketing efforts behind those changes.

So can you talk about your view behind what's necessary on the brand side or on the performance marketing side for both merchants and consumers to get them familiar and comfortable with the new Groupon platform? And then, sort of similarly, under the greater commitment of becoming a voucher-less card linking and open marketplace that's based around a local discovery platform, how do you view the Goods and Travel segments fitting into the portfolio? Would you ever think of selling the Goods business and becoming leaner and kind of going all in on local discovery? Thanks..

This is Rich. I'll start and Mike can add color as he sees fit. But, I think, it's great question on the step-up investment in the product and in the experience and how that relates to marketing.

I guess, how I would couch that first and foremost is, when we think about the brand and we think about the experience, ultimately, the brand is built most quickly and I think the least most sustainably through a great product experience that matches the proposition that we're putting out.

So, a significant amount of our efforts, at least in the first part of the year, are going to be on really refining that product experience and delivering the kind of experience that supports this expanded brand value prop, because my concern as a marketer historically is, it's actually pretty easy to go build TV ads and creative spots and intercept consumers and all of the various large ad platforms and deliver a message.

The magic is actually when they get to your site or your app that they really experience what you just said was going to be new and different. So, I think we really have to focus and double down our efforts and focus on making the product just amazing here and then support that with marketing.

Now as far as overall marketing, our challenge isn’t the size of our marketing investment potential. I mean, we - I wouldn't expect major changes to marketing expense levels overall.

I would just expect probably some changes around how we allocate that investment, both from a channel perspective, how we're how connecting with consumers, and probably as well expect some changes in how it's allocated, where we're going to direct more of that marketing to International, where we see significant opportunities.

But again, I think product first, marketing allocation second, is really key there. With Goods and Travel, again, a great question. Goods has been a good solid engagement driver for us over the years.

We have a different version of Goods than our typical eCommerce competitor, and our focus with Goods has been making it more and more efficient and driving more gross profit, albeit at lower units and lower overall volume.

But, we're just trying to build a good quality business there that continues to engage customers and help us bridge to this vision of a broader local focus marketplace. Travel is very different there and Travel for us again is really localized travel, primarily. We have a specialization in drive-time travel.

A lot of what we do, when you look at our Travel product is within a couple hours drive of our city locations, and then we support that with tours, which are again more unique and destination oriented. So, our Travel product very much fits the local marketplace. Now on both of them, it's a fair question.

Would we sell them? I think the thing to consider about our - all of our businesses is that they share our customer base. So, when we look at it, this is an integrated business at Groupon, our customers think of these businesses as Groupon.

So, that's been less of a focus for us and more of - I think as we look at the opportunities there is how do we improve our partnership there, to continue to differentiate the product, to bring on better inventory that attracts more customers, increases our conversion rates, et cetera.

And I think there's a lot of economic opportunity in improving those aspects of it, and that's really where we're focused..

And your next question comes from Eric Sheridan of UBS. Eric, your line is open..

Maybe if we could just tease out, as you look through 2019 and think about the arc into 2020 beyond, how do you think about allocating dollars behind customer acquisition, customer retention and promoting velocity of shopping versus re-engaging with customers that have tried the platform before and maybe even have the app on their phone and trying to continue to re-engage them back into the process? How should we think about the relative spend and relative ROI of the pathway to sort of continuing to promote growth? Thanks so much..

Thank you for that question. You know, first, I think, Eric, to Rich's commentary and the overall shareholder letter, I mean, I think it all starts with an improving product, it all starts with improving the customer experience, and that includes expanding card linking, bookability, enhancing our mobile experience.

And then on the International side, it includes taking what we know works well in North America and applying it to International and continuing to build high-quality supply on the International platform as well. And so that's the start.

And then from a marketing standpoint, what the goal there is, is to improve the customer experience, to make it easier for them to consume and then ultimately have a higher level of conversion. And then that conversion ultimately goes into how you think about marketing, because it ultimately improves your ROI on marketing.

The way we think about marketing has been pretty consistent over the last few years. And the thought process around that is one I would expect to continue and that is we look for a 12 to 18 month payback.

Our goal is to ultimately be investing in the things that are going to improve customer experience, have that ultimately lead to higher gross profit per customer and therefore have that result in both higher returns for existing customers, but also then give us the ability to acquire and retain customers that perhaps before wouldn't have been economic, but become economic because of the improved level of conversion.

So, that's our goal and that's why our focus is on customer experience, particularly targeting increased conversion.

As we go throughout this year, what we have talked about in our commentary is that we would expect that in both North America and international, we continue to see strength in GP per customer, that's a trend we would expect to continue as the year progresses and even into - potentially into 2020..

The only thing I'd add, Eric, is as we think about - part of your question is really allocation between acquisition and re-acquisition or retention, I guess, I would paint a little bit of a different picture between International and North America.

Whereas in International, we're just very - much earlier in most countries in our level of penetration into those markets. Those are - in our 15 countries or 14 outside of the U.S. there's a lot of room to increase our penetration rate.

So, International is probably a little bit more biased towards getting high-quality new customers in the door, whereas in North America, as we've talked about over the last couple of quarters, as we've improved our ability to really identify customer quality and better predict customer quality and value on our platform, we're taking a bit probably more of a balanced approach in acquisition and retention and re-acquisition and how we're deploying that improves the level of granularity and predictability and customer value.

So, there is a little bit of a difference in International, we're being more aggressive on new customer acquisition to really start to generate the kind of scale that we have in North America, but they're all fundamentally feeding off the same systems, the same intelligence, the same automation that has allowed us - enabled us to generate higher marketing leverage over time here..

And your next question comes from Sameet Sinha from B. Riley FBR. Sameet, your line's open..

I guess, the first one more on the numbers side. So, 2019 EBITDA guide flat versus '18. Where do you expect free cash flow to fall out? We saw 60% adjusted EBITDA to free cash flow conversion in '18.

Is it higher CapEx investment along with all the SG&A marketing investment that you plan for this year? And also if you could elaborate on where the headwind from the - to working capital would be from the Groupon Plus transition? And second question is, you talking about marketing shift to International, do you think you need more help on the - in domestic? I mean, we're seeing higher customer losses, elevated levels, you're talking about continued losses throughout the year, and I understand your segmentation and thought process, but is there a need to kind of the build the brand more in domestic? Thank you..

Sure. So, on free cash flow, the way I would think about that, I would expect free cash flow in aggregate to generally trend with our trends in adjusted EBITDA. So I would expect that you'd like - you're likely to have similar levels of free cash flow as you have similar levels of adjusted EBITDA.

With regards to working capital and Groupon Plus, as Richard highlighted in his shareholder letter, you see us over time leaning to a greater degree generally in card linking. Card linking has different constructs, not all of them are the existing free-to-claim model.

And with that the working capital dynamics could be closer to our traditional voucher product.

So the overall thought there is, is I would not expect a material negative headwind from the transition to card linking, and I would just say, in aggregate, I would be thinking of our free cash flow as, in general, this year, next year, over time, generally trending with our trends in adjusted EBITDA.

With regard to how we think about marketing in International and how we think about marketing in North America, I would separate the two pieces, and Rich touched on this a bit earlier. In International, we are still in early innings.

I mean, we still have a large untapped market of over 0.5 billion potential customers that we have the potential to acquire.

And what you see in International is, we're able to acquire customers and at the same time, maintain a high quality of customer and you see that through GP per customer, where generally the trends have been GP per customer increasing while we add customers, which is not necessarily an easy thing to do, but highlights just the value of the customer on average that we're acquiring.

In North America, I think there's a couple of things you have to ultimately tease apart. One is, we are very focused on making sure if we invest a dollar in marketing, we receive an adequate return on those dollars. I mean, Rich has said this before, we're not going to invest a dollar and get less than a dollar back on that.

I mean, we want to make sure we get an adequate return within a reasonable time period and we see that, and we continue to get increasingly granular and refined in our customer and retention acquisition efforts. And with that, you see some declines in our customer base.

Now, the other thing I would add is, obviously, our customer base is also influenced by the trends in free traffic as well and that influences it as well. But we're going to be very disciplined and appropriate with our marketing dollars, to just make sure we're getting good returns for those investments and lean in where we can get good returns..

Yes, the only thing I'd add on that front, Sameet, is I mentioned it in the stockholder letter that probably one of the hardest things we've had to grapple with over the last really 12 to 18 months has been the decision to allow that customer base to get smaller in North America, but we - our conviction is ultimately around, customer count can't be a vanity metric.

It's really about the quality of the customers you have and the productivity of those customers in your platform and that you're investing your dollars intelligently and that's ultimately what helps us get past that. But it's also not something that we're just blindly accepting. We don't look at that as a trend.

We want to see continue in perpetuity by any stretch.

Our goal here - and it's really to your question around building the brand is, we need to get to the - we need to get the product in place that imbues that kind of repeat behavior and value creation naturally, with requiring less marketing over time is the ultimate goal that we just have that sticky product that people love to use and that they come back and use quite frequently on their own.

So I think that's really the core here and while we're building that, we're just going to be really diligent in the dollars. Just to be super clear, we're not accepting the fact that, that number is going to go down, blindly. We're accepting of it as an active decision in the near term, but that we're actively working to reverse over time.

And a lot of that will come from product and smart investments and how we build the brand and how we market to customers on a more targeted and strategic level..

And your next question comes from Tom Champion of Cowen. Tom, your line is open..

Thanks for all the colors and the transparency. Just curious if you could address the EBITDA shortfall in 4Q. It seems like email and Google were known headwinds at the 3Q print. So I'm just curious if anything got worse. And then could you just elaborate a little bit more on the decision to rebrand Groupon Plus? Thank you..

I'll take the first part. You know the primary driver of the performance that came in lower than our expectations in the fourth quarter is really on the International Goods side. We made a decision in the holiday season and what we saw to be a very competitive market is to really capture our position in that market and lean in a promotional way.

And with that, we saw good units increase. We think that was the right decision overall for the platform. What it did result in lower margins and resulted in lower GP on the International Goods - in the International Goods area. That was the primary driver in terms of our variance in the fourth quarter versus our expectations..

Yes, exactly right.

And I think it's always important to remembering Q4, a lot of Q4 happens within really about a two-and-a-half week period and being dynamic in those periods will oftentimes, if given the volume in that stretch, can move a lot of dollars around short period of time, but again in that space, I think we made the right call to keep engagement high and continue to drive volume on the platform.

Tom, on your question on G Plus rebranded, ultimately, it comes down to decision we made frankly to say, what are we going to do, are we really just - are we going to just push this one version of a product out and try to have it just be a piece of the portfolio or are we going to try to make card linking the way Groupon works? And Groupon Plus is ultimately - it's a product, it's a low discount product targeted to primarily restaurants with low average order values.

We see an opportunity and we've been testing significant number of permutations of card linked products that really just again apply a discount via the credit cards and that's something that I think has a lot of potential on our platform to just again make it how the product works to really keep it in the vein that people understand, which is you're giving me cash back.

So, again, it's - to give us more room to play and to not pigeonhole us into a specific version of card linked or to confuse the customer when we start to make card linked part of other things.

As we just - we want to avoid that confusion as much as possible and give ourselves as much room as possible to innovate around the card linked platform we've built here and to make it again just core to how the product works for consumers every day..

And your next question comes from Doug Anmuth from JPMorgan. Doug, your lines are open..

This is Neeraj on for Doug. So just I wanted to confirm, you talked about the email and traffic headwind coming at around $100 million for '18.

So is that a similar dollar impact that we can kind of expect for '19 or because it was like two or three quarters in '18 versus a full-year impact in '19? And a second one would be, so you guys said that you had like 12% offers from the three-p partners on the marketplace.

Could you update us with the current number and any particular partner or vertical where you have seen better-than-expected adoption?.

On the headwinds with regards to email and Google, you're right, for 2018, we sized that at about $100 million in 2018. It's going to be disproportionately email. I mean, the Google is a piece of it, but emails are not going to be the larger piece of that $100 million.

Our overall view going into 2019 is that that trend doesn't get better, and we're not necessarily assuming it gets worse, but our plan and the guidance we've given today contemplates the continuation of those trends and we build upon that.

And so we would expect a similar level of headwind in 2019 as we experienced in 2018 and that's reflected in the guidance that we've provided here. With regards to the percentage of our offers coming from third-party, it's still right around 12%.

We have a really strong - a really strong order potential book of partners that we're in deep conversations with and so we're really excited about the potential there.

We also have a large number of customers - a large number of partners that have been signed and we continue to work on enhancing the customer experience, just improving how consumers consume that inventory and making it a better Groupon experience. So we're excited about that and think there's a lot of potential there..

Yes, Neeraj, thanks for the question.

The only - just a little bit of color, the offers are substantially similar, as Mike said, out for a really basic reason and that we locked down much of our development during holiday peak here to make sure that we have all of our - all hands on deck to drive speed and availability on the site and that we're managing that what is a really, really big amount of volume coming in.

So integrations are just slower during Q4 and that's purposeful, but as I pointed out in our stockholder letter, and as Mike mentioned, we're going to be doubling down on our efforts there, increasing investments in product and engineering there to accelerate our integration volume and new partner pipeline over the course of 2019..

Your next question comes from Matthew Trusz of G Research. Matt, your line is open..

Just given your exposure to external factors and industry dynamics, consumer trends, can you discuss your current sense of your level of strategic visibility and your comfort with that as far as making the long-term decisions you have to make on the platform strategy and capital deployment?.

Sure. Thanks for that Matt and add color, Mike, as you see fit. But I mean there is obviously - there's always a lot moving around in the marketplace and this was just that, if you're thinking about pure economic factors, this was a company born in a recession and that tends to - that would tended to logically work well when times are hard.

So but we also know that during boom times, this is when a lot of discretionary income is deployed at a local level. So we're mindful of those pieces and watching them very, very closely and also watching the competitive environment very, very closely.

But, I think, again, most of our strategy is geared around tapping into big swim lanes that are established, that are under-served and vast majority of small business land and really just connecting that offline to online commerce trend in a more acute way and a lot of that is not impacted by major external factors like economic component.

So we're mindful of that. We watch that. When it comes to capital allocation within that, however, I think, we're always looking at balancing our capital allocation between returning value to shareholders.

You saw us in Q4 begin some opportunistic share buybacks and we have a significant amount remaining on our repurchase authorization, close to $300 million there.

I would expect us to continue to be opportunistic moving forward on that side and we'll balance that opportunism with how we invest organically and being opportunistic inorganically, where I would say in the latter, we've been very conservative over the last few years and where certain external factors may make that easier for us to be more aggressive moving forward.

But the good news for us is, we have ended the year with close to $850 million in cash. We have solid free cash flow and an ability to generate it going forward.

So we - I think we're in a really good position to balance our ability to invest aggressively in the business organically and inorganically to accelerate our platform, as well as return value to shareholders..

And just quick follow-up on the competitive part.

As we think about this Google traffic headwind, of course, that hurts you and other local companies, how much do you think it's helping Google get deeper into this space as a competitor based on your conversations with merchants as opposed to just changes to their UI or UX in the web platform? Thanks again..

Thanks, Matt. It's great question. I mean, we haven't really seen any significant feedback from merchants there and I think important thing to think about with us with respect to Google is, we're a big customer of Google then on the ad side as well as we worked with them strategically inside their products in other ways.

You're seeing Groupon by buttons throughout the search console that weren't there now that not all that long ago. So we're working with them in other ways to give Groupon different kinds of exposure.

But I would expect Google is going to continue as they always have trying to optimize how they deliver search results to customers based on what they believe is going to be a better overall user experience. And again, most of the changes we're seeing are really in the organic side of search.

So that's a space where we generally feel pretty good over time in our ability to adapt it to those new UIs because we have unique content. We have what is very quickly becoming one of the largest catalogs of buyable inventory of local, as we aggregate all this inventory together.

So that's the content that lots of people want, but content that very, very few people have. So we feel good about our ability to continue to optimize.

But it is a space we watch super closely and in a way that we feel that we can continue or replace a space that we feel we can continue to participate in arguably disproportionate ways over time given the uniqueness of our content..

And your next question comes from Michael Ng of Goldman Sachs. Michael, Your line is open..

I have one on the 2020 EBITDA target and a follow-up on Groupon Plus.

First, on the $300-plus million EBITDA target in 2020, can you talk about what type of assumptions are underlying that from a gross profit growth perspective and leverage and OpEx relative to the 2019 base and your confidence level there? And then on Groupon Plus, apologies if I missed it, but do you have an update to any of the Groupon Plus KPIs that you've disclosed in the past, whether that merchants enrolled, card enrolled and redemptions? Thank you..

Sure. I'll take the first part of that. On 2020 EBITDA, our overall thoughts around that is, if you look at our overall customer trends, what we see in 2019 is our trends on customers generally continuing with increasing GP per customer.

Now, as we go into 2020, we believe those customer trends start to moderate, and then you have a greater benefit of the GP per customer starting to flow through. On the International side, I would expect fourth - the foreseeable future, we'd believe for the foreseeable future, we would see growth in both customers and GP per customer.

So both of those we think ultimately aid gross profit.

And then on the SG&A front, as we've talked about, you should expect that we will continue to become or continue to be disciplined operators and we continue to - we've continued to embed within our culture of the idea that we have to be efficient and effective with the dollars we have to operate the Company.

So you should expect that we'll continue to work to generate SG&A leverage, not just this year, but continue to try to aspire to generate SG&A leverage in the future. And then marketing, which would be the last piece - the last major piece of the P&L, that's ultimately going to be ROI based.

We're going to continue to focus on our 12- to 18-month payback.

And so, if I add all those together, I see going into 2020 with customer trends starting to moderate, but the continued benefit on GP per customer in North America, the continued benefit of International customer growth and International GP per customer on a continued more efficient cost base..

And Michael on G Plus, we've made some notes of this in the stockholder letter, but we've continued to see sequential improvements on things like cards enrolled, we're approaching 7 million cards enrolled versus just over 6 million or so last quarter.

We're now at about 7,000 merchant locations, so again continued improvements on that sequentially, and again very large year-over-year improvements there, and continue to do well over a million transactions of redemptions in the space. So continued progress, I'd say on G Plus.

But ultimately, again, as I said in our stockholder letter, you should actually expect us to slow some of those down a little bit, as we really focus on really - really making card linking a part of the Groupon experience and start focusing our energies on getting that card-linked to redemption mechanism in more places versus just trying to continue to scale the one version of G Plus.

So, we'll be using some of our impression allocation here to start driving some education in new product rollout and new experience rollout, so that we may slow down a bit on some of these metrics.

But I think it's for the right long-term outcome and one that we would expect as we move into the back half of the year where we'd start to see some acceleration as I mentioned in the letter..

And your next question comes from Tom Forte of D.A. Davidson. Tom, your line is open..

Thanks for taking my question. So the question is for, Rich. So despite the best efforts from management and the efforts have been very admirable, but your shares remain depressed.

Is it time to reconsider, perhaps go private, it would give you the opportunity then to make adjustments you may need to make to the business without the scrutiny of Wall Street. Thanks..

Look, we are always looking for the best way to deliver value for our shareholders, that's first and foremost in our mind, and I think, as you know, this is a completely open-minded management team.

And then, as we've said in the past, there is - it's not surprising that there is interest in the Company, but we have to do the right thing for shareholders. And one of the right things to do for shareholders is to not take our eye off the ball and not continue to make progress on a strategy that we believe can unlock a lot of value over time.

So our biggest focus right now is on accelerating the strategy that's showing that it can deliver different kinds of experiences and different kinds of engagement on our platform, and as I mentioned in our letter being much more aggressive with the moves that are required to bring that strategy to life, especially relative to where we've been.

We've been trying to feather a lot of things in and I think this is just - we're at a place now where we understand we need to just make this how our platform works. Things like booking can't be an option here, things like ticketing can't be an option here and things like card-linked redemption can't be an option.

It just needs to move that direction because it just works better. So while we're - we will continue to be open minded, continue to look for ways to unlock value for shareholders through any mechanism.

We're going to be really focused on being very bold this year on the product changes and enhancements we need to make and the investments in the platform that we need to make to accelerate our transformation..

And your next question comes from Deepak Mathivanan from Barclays. Deepak, your line is open..

I realize that optimization on marketing spend is impacting customer metrics, but can you talk about the new customers that you're acquiring, what are you seeing in terms of gross profit per customer, repeat activity and retention in that specific cohorts? It's kind of hard to see that from reported metrics.

The reason I ask this question is because, do you feel confident that you can achieve customer growth back, once you lap through these efforts in 2020 at similar unit economics? Thank you so much..

Yes. So I'll take the first part and then I'll touch on the second part.

So in terms of the first part, what we're generally seeing is as we're acquiring customers, we're seeing within the recent cohorts some generally positive trends, where we see higher GP per customer than what we've seen historically within that, as we are getting more refined in terms of who we acquire and who we choose to retain.

So we feel very good about our segmentation efforts and we think it's ultimately the way to ensure that we have achieved appropriate return on our marketing dollars. On the second part, there's two elements there.

First, ultimately, if you increase GP per customer that basically over time - and you increase conversion on your platform that increases over time the potential pool of customers you can acquire, which increases the potential for customer growth, just simply because as you acquire a customer, the potential return is higher, because they're likely to convert better, because you have a better consumer experience.

Hence the reason we're very focused on customer experience conversion, improving the quality of supply, bookability, card linking, et cetera. With that being said, what's really important, though, at the same time is putting growth and size of the customer base aside, is really evaluating how to maximize the value out of the customer base.

Keeping in mind that today our average customer is purchasing from us approximately once a quarter, think about the power of, if you're able to increase the frequency by unit, what's the potential there is.

So, from our standpoint is, we certainly would like to see a growing customer base over time, but where there really a lot of power is in the - particularly in North America, is the potential to increase frequency, increase gross profit per customer..

Yes, I guess on that front, Deepak, I mean I'll just reiterate what Mike said is that we do believe we can continue to grow the customer base over time and it's going to be uncomfortable for a period of time as we refine the quality of the customer base in North America, but it's important to remember, we don't need to grow the customer base in order to deliver an outsized outcome, a significant amount of growth, and that's goes to Mike's point, one more unit our current economics has massive potential on the bottom line because that's really just all kind of flow through.

So the upside of that as well is that the more we do that, the more we can invest in customer. So we're looking to really establish a healthy and stronger virtuous cycle there, but it's really about that call option for growth, which is not - it's not a requirement to have a bigger customer base here.

From our view, it is a requirement to have a higher quality one with higher GP per customer..

We have no further questions at this time. So this will conclude our conference call. Thank you for your participation. You may now disconnect..