Groupon Inc. (GRPN)’s decision to fire Andrew Mason puts pressure on Chairman Eric Lefkofsky to find a replacement who can create a money-making business after the daily-deal provider lost $723.8 million in the past three years.
As chief executive officer, Mason presided over a plummeting stock price, an earnings restatement and at least three quarters of results that missed analysts’ expectations. Mason, 32, addressed his ouster yesterday in a letter to employees, joking about needing a “fat camp” to lose weight even while accepting responsibility for Groupon’s shortcomings.
Lefkofsky, who co-founded Groupon with Mason in 2008, will run the company with Vice Chairman Ted Leonsis as they search for a new CEO. The board members are charged with finding fresh leadership while accelerating a risky push into e-commerce and away from daily deals, a market Mason helped create. His exit caps a tumultuous period that saw Groupon emerge from nowhere to hold the biggest technology initial public offering since Google Inc.’s -- only to plunge on the public market.
“They grew too fast, and sometimes that can cause management to lose a little bit of focus on profitability,” said Arvind Bhatia, an analyst at Sterne Agee & Leach Inc. in Dallas, who recommends buying the shares. “Eric and Ted will bring in a new CEO with a strong operating background to move the company forward, so they not only grow the top line but more importantly the bottom line.”
Former CEO and Co-Founder of Groupon Inc., Andrew Mason at the Groupon Inc. offices in Chicago. Close
Former CEO and Co-Founder of Groupon Inc., Andrew Mason at the Groupon Inc. offices in Chicago.
Former CEO and Co-Founder of Groupon Inc., Andrew Mason at the Groupon Inc. offices in Chicago.
Board Removal
Mason also resigned from the board, according to a filing with the U.S. Securities & Exchange Commission.
Groupon climbed 13 percent to $5.10 at the close in New York. The stock had plunged 24 percent yesterday, a day after Groupon’s fourth-quarter earnings report, and through Feb. 28 it had lost 77 percent of its value since the company’s November 2011 IPO.
Mason’s stake in the company, worth $938.7 million at the time of the IPO, has plummeted to $212.6 million at yesterday’s close, according to filings and data compiled by Bloomberg. As of the end of last year, he hadn’t sold shares, filings show.
The decision on his fate was made at a board meeting yesterday, said the person with knowledge of the matter. The directors formed a search committee led by Lefkofsky and Leonsis and intend to hire an outside firm to find a successor, said Paul Taaffe, a spokesman for Groupon.
In today’s regulatory filing, Groupon disclosed business transactions it has done with companies in which Lefkofsky and Leonsis are shareholders. Groupon bought $4.21 million in services from firms Lefkofsky invested in. In conjunction with the leadership changes, Leonsis stepped down from his role as chairman of the audit committee on Groupon’s board. Robert Bass, another director, will assume that role, the filing said.
Eric Lefkofsky, chairman of Groupon Inc., co-founded Groupon with Mason in 2008. Close
Eric Lefkofsky, chairman of Groupon Inc., co-founded Groupon with Mason in 2008.
Eric Lefkofsky, chairman of Groupon Inc., co-founded Groupon with Mason in 2008.
Raman Option
The board will weigh Groupon executives as well as external candidates, said the person.
One of the strongest internal contenders is Kal Raman, a former EBay Inc. and Amazon.com Inc. executive who joined Groupon in April, said Sameet Sinha, an analyst at B Riley & Co. Raman was promoted to chief operating officer in November.
“He’s kind of an operations guy, which is probably what you need,” Sinha said.
Other Groupon managers with experience at large e-commerce companies include Chief Financial Officer Jason Child and Jeff Holden, a senior vice president of product management. Both are veterans of Seattle-based Amazon, the e-commerce leader.
Mason’s successor inherits a company that has courted controversy since rejecting a $6 billion takeover offer from Google in late 2010, opting instead to explore an IPO. That decision looked prescient when Groupon boasted a $16.7 billion valuation after its first day of trading on the public market.
Groupon said that first-quarter revenue will be $560 million to $610 million, trailing the $647.7 million analyst average, according to data compiled by Bloomberg. Close
Groupon said that first-quarter revenue will be $560 million to $610 million, trailing... Read More
Groupon said that first-quarter revenue will be $560 million to $610 million, trailing the $647.7 million analyst average, according to data compiled by Bloomberg.
Bookkeeping Questioned
From there, the stock dropped precipitously, losing half its value in six months. The company suffered from accounting missteps, including backtracking on an unconventional approach to bookkeeping outlined in its S1 IPO filing. It also failed to come to grips with ebbing demand and rising competition.
The forecast released Feb. 27 hastened Mason’s departure. Groupon said that first-quarter revenue will be $560 million to $610 million, trailing the $647.7 million analyst average, according to data compiled by Bloomberg.
“From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves,” Mason wrote in the letter. “As CEO, I am accountable.”
Amazon Competition
Mason had been racing to push Groupon into the broader e- commerce market by focusing on sales of products. He was working to boost growth as demand for online discounts faded and pressure from investors and his board mounted.
Groupon Goods, a service started in 2011 to help retail companies such as Dell Inc. and Garmin Ltd. peddle thousands of marked-down items via two-day sales, is on track to reach about $2 billion in annual billings, Groupon said this week.
Even so, that business has lower gross margins than daily deals, and competition with the likes of Amazon, EBay Inc. and Overstock.com Inc. will probably erode profitability, said Abe Garver, managing director of West Palm Beach, Florida-based supply chain consultant BG Strategic Advisors.
“Under a best-case scenario, redirecting resources to Groupon Goods makes it a direct competitor of Amazon, EBay, Overstock and other top 500 Internet retailers,” Garver wrote in an e-mail. “The margins are thin and professional investors already have exposure to the sector.”
Hands-On Lefkofsky
Mason isn’t solely responsible for Groupon’s missteps. Lefkofsky, 44, told Bloomberg News just after Groupon filed its prospectus that he expected the company to be “wildly profitable.” Groupon later updated its IPO filing, telling investors to disregard the comments.
As the largest shareholder, with a 17 percent stake, Executive Chairman Lefkofsky has maintained a hands-on role since Groupon’s early days. He previously founded several companies, including software provider InnerWorkings Inc. (INWK), where Mason worked for a few months in 2006.
Lefkofsky kicked off the process last year that led to Mason’s ouster. The chairman approached an outside adviser to discuss a possible replacement, a person familiar with the conversation said at the time.
Headhunters may struggle to find an executive willing to handle company oversight while taking orders from Lefkofsky, said Adam Charlson, executive vice president of DHR International Inc.
“What CEO is going to want to take over with one of the co-founders involved in the company,” Charlson, whose firm does executive searches, said in an interview. “Anybody who takes the job is going to be looking for another job in six months.”
To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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