In Need of Some Serious Group Therapy
Diane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After a downright dismal fourth quarter earnings report, daily deals site Groupon (NASDAQ: GRPN) dealt Andrew Mason his final deal. The quirky and unconventional CEO and founder was relieved of his position. The ouster wasn’t a big if any surprise to Mason or shareholders. Last year, Groupon’s board mulled replacing Mason amid the steep slide in the company's share price and waning revenue. The growing gloom hovering over Groupon left scores questioning Mason’s ability to run the company and his fate.
Sure he was a “fun” guy and CEO, but his business acumen left him way out of his league overseeing a public company. A Dartmouth business school professor in 2010 rated Mason “One of the Worst CEOs of the Year.” That was before Groupon's hugely hyped IPO and should raised some red flags for potential investors. Perhaps he held on longer than even he imagined.
In typical Mason manner, the dethroned CEO fired off the following email to employees: “I was fired today. If you’re wondering why…you haven’t been paying attention.”
Temporarily replacing Mason is co-founder Eric Lefkosky and Vice Chairman Ted Leonsis. The duo will man the helm while the board begins the search for a new CEO who certainly will take on a huge task.
For the latest quarter, Groupon lost $81.1 million, or 12 cents a share, much steeper than the year ago loss of $65.4 million. Forward guidance was gloomy, and the conference call following the earnings release was equally as glum. CNBC’s Jim Cramer called it “the worst conference call ever.”
The company went public in 2011 at $20 a share. Shares ended its first day of trading at $26.11 and traded higher for a few subsequent days. But the rally didn't last. Its downward spiral in 2011 earned it a place on the list of worst IPOs of the year. Shares have tumbled further and are currently some 70% below its offering price.
While removing Mason was warranted, a new CEO may not be the quick or ultimate fix many are hoping for.
The deal-a-day, online coupon site is facing some serious competition from heavyweights. Living Social is backed by the e-commerce giant Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG) has Google Offers. These are just two companies muscling their way onto Groupon’s turf.
Underscoring the challenges Groupon faces is the hefty loss Amazon booked after investing $175 million in Living Social. Following the investment, Amazon’s Q3 2012 loss of $247 million included a loss of $169 million, or 37 cents per share, “related to our equity method share of the losses reported by Living Social.” So basically, Amazon’s investment in Living Social was just shy of a complete wipe-out.
Meanwhile, Google looks to be having better luck with its Google Offers. Like Groupon, the new Google site lets buyers take part in a certain deal at a small business provided they can get enough members to partake. The premise is to allow smaller businesses to make up in bulk what they lose in offering the “sale.”
The new venture was confirmed just a few months after Google courted Groupon in a $6 billion buyout. But Google was rebuffed. Looks like Google's loss was also its gain. Should the Internet behemoth go after Groupon again and say “let’s make a deal,” they could probably get a great deal given Groupon shares are nearly "half-off" and now worth roughly $3.8 billion.
But Google might decide it doesnt need or want Groupon no matter the bargain price. Google just made it a snap for all of its advertisers to do daily deals and discounts alongside other ad formats on the site. So, the Internet search giant could simply shun and squash Groupon altogether as it goes after Groupon’s core business and customers.
Groupon’s latest quarter highlights the difficulties the Chicago based company faces in attracting and retaining both merchants and members. But the biggest problem presently plaguing Groupon is the fact that fewer people are buying deals in general.
We’ll see soon enough how Groupon plays the hand it’s been dealt. LBO and M&A activity has been hot this year; someone could come poking around Groupon. The joker (Mason) is gone. No more bluffing. This is an opportunity for Groupon to ace a big score or fold.
DianeAlter has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!