Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Andrew Mason Was Not the Problem

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Sorry Groupon, (NASDAQ: GRPN  ) , cutting off the head won't save you

As you've probably heard by now, founder and CEO Andrew Mason was ushered out yesterday by the board after the daily deals specialist posted another dismal quarter. The company posted a surprise adjusted loss of $0.05 when analysts had expected a $0.03 profit, and first-quarter guidance was also well below expectations.

Rumors of Mason's ouster had been swirling since November, and it's certainly understandable why he got the axe. As he readily admitted in his farewell letter, in its brief period as a publicly traded company, Groupon had been haunted by an accounting scandal, consistently missed its own guidance, and seen its share price lose roughly 75% of its value.

While it's easy to blame the CEO for such problems, Mason deserves credit for launching a model that many had failed at before, and the company's quirky, sassy style helped it establish itself as the market leader, beating out better-funded rivals like Living Social and Google.

Employees portray a company with a "work hard, play hard" culture with a management style that often seems to be disorganized. Perhaps the next CEO can straighten the staff out, but changing the culture is difficult, especially since many employees signed on in part for the offbeat workplace. As one jaded former salesperson wrote on, "Before they went public, this was THE best place to work in Chicago. Now, it's a grind to move the stock price up pennies at a time, with no consideration for the long-term effects." With Mason's exit, the company may be taking one more step in a misguided corporate overhaul.

Co-founder and Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis will take over in the interim while the company searches for a new chief.

Lefkofsky is also Groupon's biggest shareholder, and as an entrepreneur with previous start-ups like and Brandon Apparel, he has a history of shepherding high-growth companies into ruin. Leonsis is a veteran of AOL, who saw the company through its rise and fall and subsequent modest recovery.

Groupon investors were doomed from the start. A $15 billion initial valuation is generally reserved for healthy, stable companies with a long history of profits, not speculative growth plays in undefined industries with no profits to show for themselves. Household names like Macy's, Whole Foods, Aetna, and Kroger trade in the $15-billion valuation range.

The other problem was the business model. Groupon's launch in November 2008 was perfectly, if accidentally timed, with the financial crisis and subsequent recession. The business thrived off penny-pinching deal-seekers and merchants in need of cash flow. But over time, Groupon rubbed many participating merchants the wrong way, consumers got deal fatigue, and the faddish trend seemed to peak. No. 2 deals site Living Social recently announced layoffs, and Groupon's revenue would've fallen this quarter had it not been for its new marginally profitable direct revenue channel, made up of selling clearance items directly to customers. Gross profit, which accounts for all revenue streams, fell more than 10% in the quarter.

Foolish takeaway
Perhaps some adult supervision can reverse the slide after some housecleaning and layoffs and such, but I wouldn't expect any magic. Groupon was a speculative play all along in a new, exciting, potentially lucrative industry, but there was never an economic moat, and consumer and merchant fatigue took over. Leadership was never the problem.

Company shares have fallen dramatically over the past year and left investors panicked. Will Groupon live out its American Dream, or leave shareholders empty-handed? In order to answer that question, our analyst has compiled a premium research report with in-depth analysis on whether you should buy or sell Groupon right now, and why. Simply click here now to get started.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2288711, ~/Articles/ArticleHandler.aspx, 9/27/2016 1:26:24 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,225.84 131.01 0.72%
S&P 500 2,158.56 12.46 0.58%
NASD 5,296.66 39.17 0.74%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 1:11 PM
GRPN $5.37 Up +0.19 +3.67%
Groupon CAPS Rating: *
AET $115.43 Up +0.50 +0.44%
Aetna CAPS Rating: ***
AMZN $814.74 Up +15.58 +1.95% CAPS Rating: ****
AOL.DL $0.00 Down +0.00 +0.00%
AOL CAPS Rating: *
GOOGL $812.05 Up +9.40 +1.17%
Alphabet (A shares… CAPS Rating: *****
KR $29.91 Down -0.17 -0.57%
Kroger CAPS Rating: ****
M $36.44 Up +0.20 +0.54%
Macy's CAPS Rating: **