Groupon and Investing in Technology
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So the news came down that Groupon (NASDAQ: GRPN) CEO Andrew Mason was forced out at the end of February. Two established executives, Ted Leonsis and Eric Lefkofsky, both investors in the company, will be co-chief executives from this point forward. I doubt very much that anyone reading this is shocked by the news. I find it encouraging.
It's encouraging because it's a sign that the adults have arrived for Groupon. As I've written before, mature firms – firms that are worth investing in – behave like adults. If the CEO's lifestyle and pronouncements are getting more positive attention than the company's results something is very wrong with the business. In the end, a public firm is about returning value for shareholders by providing quality goods and services to customers. Nothing more. It shouldn't be about the leadership or such.
Yes, you can point to Steve Jobs over at Apple (NASDAQ: AAPL) as a counter-example. Fine. But Jobs was an actual visionary. A genius in both what he thought the company should be and where he thought the customer base would go with the products Apple produced. But there aren't many visionary geniuses out there. Sure, there are a lot of CEOs and CEO-wanna-bes out there who would like to convince you they meet that standard...but 99.99% of them don't, no matter how much ink they get in magazines.
It sounds like a good idea, pushing a hyperlocal set of coupons and such to promote businesses. I've certainly bought some down here in Charleston, SC (mostly for restaurants). But in the end it's about making money with your concept, and Groupon hasn't figured that out. It was all the rage a few years ago and that was nice, but there's more to this drama coming.
That wooshing sound you hear is the value of Groupon's shares. Even with all the users and positive media coverage the firm wasn't making money, and investors knew it. In the last year shares have dropped 76.7%. Of course the EPS is negative and there's no profit. Is it any wonder Mason was fired? The move could bolster Groupon's shares in the short term, but only profitability can improve them in the long.
eBay (NASDAQ: EBAY)
I consider eBay to be a tech company that has matured. The online auction site (not the only one for those paying attention – just the biggest) provides a useful service to both sellers and buyers, does it quietly and without drama, and crazily enough makes money. It's just a crazy enough idea that it might work!
The firm's stock has even done the growth thing this year. It's up 50.4% in the last twelve months, and I think the world expects that growth to continue. A P/E of 27.51 strikes me as encouraging, without being all dot-com tech company insane. I do wish it paid a dividend, but I'm a growth and income type of investment guy. If you don't mind the lack, then eBay can be a good investment for your portfolio.
Amazon (NASDAQ: AMZN)
No lie, I've never been impressed with Amazon. Sure, I'm impressed at what the company has assembled. But that's more a matter of size than anything else. Still, this far into the project shouldn't it be making some money? Maybe? Well, the company is certainly admired, if nothing else. But profit would be good. Just a thought.
Despite all of my naysaying, the shares keep going up, and the spotlight stays on Amazon. And CEO Jeff Bezos knows how to play the media. At some point, though, people are going to expect a return. The stock is up more than 40% year-over-year, though a big chunk of that came in a late April 2012 surge. Since then it's grown 13.9%. Still, that's good and I can't deny it. But the previous quarter's P/E above 2,000 shows me that it's overbought and people are buying the hype and not the reality. Good luck to them.
Microsoft (NASDAQ: MSFT)
The quintessential adult technology firm. A little stodgy, a little boring, especially compared to its flashier rivals. And Steven Ballmer and Bill Gates are never going to make anyone say, “Mmm...sexxxy.” But it does make some money. Last year's operating margin was almost 30%. Not many firms, much less older, mature ones, can say that.
The firm's stock has trended down for the year and it sort of mystifies me. A good chunk of that is going to be the strong 3.31% dividend yield taking money out of the shares and giving it directly to investors, though. I'll never say that's a bad thing. The board has also raised the dividend 15% this year. Microsoft should be a core part of any tech-oriented investment strategy.
This is the stock that breaks my rule. Apple had the good fortune to be led for years by an actual genius who was also charismatic as hell. Steve Jobs could break the rules because he was that one-in-a-million corporate leader who understood things others didn't. A large part, in my opinion, of the firm's recent stock trouble is because Tim Cook isn't Steve Jobs. That's not his fault.
I think Apple is a great investment now. The company continues to make money, and the stock is suffering through a decline made more by hype than results. Year-over-year the shares are down 19.1%, and from the peak in September down 37.3%. Get some now and hold on while it recovers. You can take advantage of the sellers who respond to the hype if you can buy and hold. Heck, it even offers a 2.31% dividend as a bonus.
So for now, Groupon getting rid of Mason, however nice he seems to be, is the best possible thing that could have happened to the company. Leonsis is definitely an adult and has a good record of making companies work. I have some doubts about how long he and Lefkofsky will sit in the hot seat, and I figure they'll get to work identifying a new CEO sometime this year. Still, as I said, it's a sign that the adults are in charge. Here's hoping it makes Groupon investable again.
Follow Nate on Twitter: @natewooley
More columns by Nate Wooley:
- Yahoo, Marissa Mayer and the Tough Times Telecommuting
- Google, Facebook and the Social Media War
- Which Tablet Makers Should You Invest In?
Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and eBay. The Motley Fool owns shares of Amazon.com, Apple, eBay, and Microsoft. 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!