As Stock Continues Dive to All-Time Lows, Can Groupon Regain Investor Confidence?
Tricia Duryee
All Things D
April 18, 2012 at 3:27 pm PT
Groupon’s stock continued a downward spiral three weeks after it revised its fourth-quarter results to account for higher than expected returns during the holiday period.
Friday, shares of the Chicago-based deals site closed at a new low of close to $11. At that price, it is now worth just over $7 billion, down 57 percent since the company went public last November and well off the more than $10 billion it was valued at as tech’s hottest start-up of 2011.
Ironically, Groupon’s current market valuation is actually not much more than the $6 billion offered for it by search giant Google in late 2010.
The fall for Groupon has been swift, from the honorific of being the fastest-growing company ever to one that cannot keep control of that runaway growth.
That’s perhaps no surprise.
Perhaps most significantly, Groupon went public in just four years, delivering the biggest tech IPO since Google.
The quicksilver move was typical for it. In just two years’ time, the company ballooned from 37 employees to 9,625 and from serving five markets in the U.S. to 175 in North America alone. And that’s leaving out massive expansion abroad. In the past year, Groupon has acquired roughly 17 companies, including many international copycats.
The company also has entered many new segments, expanding from selling lower-priced and simpler deals on restaurants and spas to more complex and pricey arenas, including travel, physical goods and luxury items.
But Groupon is now learning that its original business does not work across just any segment, especially to more discerning customers of its higher-level and more expensive offerings.
In fact, it was those newer and potentially more lucrative markets that forced the company to recently revise the company’s fourth-quarter report after returns skyrocketed on luxury items, such as Lasik eye surgery.
The problems forced Groupon to lower revenue in the period by $14.3 million and net income by $22.6 million. It is now reporting a wider net loss of $64.9 million on revenue of $492 million, pushing it further away from its goal of profitability.
The company also disclosed at the time that independent auditors had noted “material weakness” in its financial controls. In addition, the The Wall Street Journal reported that the Securities and Exchange Commission was examining Groupon’s revision.
With many companies, investors might have shrugged such accounting issues off, but the impact on the stock has been greater since they are only the latest in a string of similar mistakes at Groupon.
In its pre-IPO period, for example, Groupon was forced to restate revenues after counting both its portion of the revenue and the revenue that goes to the merchant together. It also had to dump a controversial accounting metric that made the company look more profitable than it was, because it did not include important costs, such as critical online marketing expenses to attract new customers.
Those came after the company retracted a statement by Eric Lefkofsky, Groupon’s co-founder and executive chairman, who told Bloomberg in an interview that Groupon would be “wildly profitable.”
At least the wild part was accurate.
Much of the blame for these missteps by Wall Street is being aimed at CEO and co-founder Andrew Mason, the iconoclastic 31-year-old entrepreneur who is largely responsible for defining the company’s culture, as well as Jason Child and Joe Del Preto, the chief financial and accounting officers, respectively.
Child joined the company in December 2010, coming from Amazon, where he held several roles over a 10-year period — including VP of finance, international, and director of investors relations. Prior to joining Amazon, he worked at Arthur Andersen as a certified public accountant.
Del Preto has been Groupon’s chief accounting officer for the past year and, before that, he was the company’s global controller for three months. Before Groupon, he was controller and VP of finance at Echo Global Logistics and also served as controller at InnerWorkings, the same company where Mason was a computer programmer in his early career.
Mason, of course, is the best known and the person most responsible for establishing the company’s whimsical culture and managing — or mis-managing, depending to how you look it it — Groupon’s hard-charging growth.
It will also be up to him to turn it all around, as the company sinks in both value and investor regard. Since the restatement, Mason has said little about how he intends to do that. In February, when Mason concluded Groupon’s first-ever earnings call, he said: “Thanks, guys, this was a lot of fun, and I look forward to many more of these.”
It’s not clear fun will be on the agenda at his next outing on Groupon’s first-quarter call in mid-May.
But, let it be said that Mason is also well aware of the risks. He’s framed and hung in the lobby at the company’s Chicago headquarters a number of gushing magazine articles from the tech boom about once high-flying companies, such as Myspace and Napster, that later faded.
Mason said he did so as reminder of how not to build a company. And, to emphasize that point, a cover of his own grinning visage sits right in the center of them all.
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