Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, we're going to throw the now former CEO of Groupon (GRPN +17.98%), Andrew Mason, in the hot seat one last time.
The dunce cap
If you caught Groupon's fourth-quarter results last night, then you would gladly award Mason the dunce cap on those grounds alone. Although revenue surged 24% over the previous year, Groupon chalked up another quarterly loss ($0.12) and saw operating cash flow decrease by more than $100 million to $65.7 million and free cash flow tumble 83%.
The reasons for Groupon's underperformance are pretty simple to explain. To begin with, competition from LivingSocial, which received a sizable $175 million investment from Amazon.com (AMZN +0.16%), is increasing and pressuring Groupon's growth. Although LivingSocial's earnings results have been even worse than Groupon's, Amazon is clearly willing to try new things in order to expand its presence, and that's a constant gray cloud over Groupon's head.
Second, there are very few barriers to entry in the daily deals market. Travelzoo, Google (GOOG +0.62%), and Amazon all offer their own local deals service that was started long after Groupon's daily deal service and they've managed to garner 5%-10% market shares, each, according to researcher Yipit. With the exception of Travelzoo, both Google and Amazon have cash balances that dwarf Groupon, which can potentially give these companies added leverage when negotiating deals with local vendors.
Finally, Groupon can't turn an annual profit to save its life. Whether it be the exorbitant amount of stock-based compensation that drags down earnings or the two accounting flubs that the company had to own up to that drastically reduced the company's perceived revenue figures since 2011, Groupon has been a financial nightmare for shareholders since its debut.
With that in mind, Groupon's board of directors voted to relieve Mason of his duty as CEO of the company after the closing bell last night and replace him with two directors instead. While many cheered this firing, it has me asking, "What in the heck took so long?" Mason's chronically underperformed where it counts, and his demeanor on Wall Street has been seen in similar light to Facebook's Mark Zuckerberg in that he hasn't taken his job as CEO seriously.
To the corner, Mason
As you might suspect, Andrew Mason didn't exactly go quietly into the night like many shareholders had hoped. Instead, Mason graced his employees with an email that Yahoo! Finance so kindly reprinted for investors to read. Here are a couple of the key points from that email:
After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding -- I was fired today. If you're wondering why... you haven't been paying attention.
OK, so Mason kids around at first then decides to get serious and take accountability for his company's poor performance.
For those who are concerned about me, please don't be -- I love Groupon, and I'm terribly proud of what we've created. I'm OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through.
And we're back to being an immature CEO again, comparing his tenure at Groupon to Nintendo-based video game Battletoads. Plus, who needs to be concerned about Andrew Mason? As founder he owns approximately 46 million shares of Groupon stock, so he should survive.
My biggest regrets are the moments that I let a lack of data override my intuition on what's best for our customers.
No, it's that part where you put stock-based compensation ahead of everything else!
Even in his parting email Andrew Mason still just doesn't get it! It's good to see him at least take some responsibility for his company's poor performance, but in all reality, he should have been ousted a long time ago. If he wants to compare his tenure to playing a game of Battletoads, then I'm going to compare his departure to getting squashed by a car in Frogger.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.
