Shares of Groupon (NASDAQ:GRPN) are on fire since crossing the Mason-nixed-on line.
The stock has risen sharply for three straight trading days since booting founding CEO Andrew Mason last week. Groupon stock opened higher this morning.
The market's response -- sending the shares nearly 25% higher in three days -- is telling. Mason was a young and eccentric corporate helmsman, and Wall Street feels that a more seasoned leader will steer the daily deals specialist higher. Sources are telling Bloomberg today that the board is focusing on external candidates to fill Mason's shoes.
I hate to be the one to defend Mason when the market has decided that Groupon is worth $725 million more in three days without him, but can anyone honestly tell me what Mason did wrong?
Grace under pressure
Flash sales aren't the moneymaker -- for the deal providers, participating merchants, and buyers of the prepaid experience vouchers -- that we thought they were going to be.
You don't have to take Groupon's word for it. We know that its nearest rival isn't doing so hot. LivingSocial may be private, but Amazon.com's (NASDAQ:AMZN) 29% stake in the niche's silver medalist forces condensed financials to be made public.
LivingSocial's revenue may have doubled to $536 million in 2012, but its operating loss also more than doubled to $905 million. Yes, an impairment charge was a big part of that, but the writedowns and layoffs at LivingSocial prove that it's the daily deals specialty that stinks, and not necessarily Mason's driving.
Oh, and just so we're clear here, Groupon generated more revenue in its latest quarter than LivingSocial did all year. Groupon also posting an operating profit for all of 2012.
I'll go even further. I won't just defend Mason, I'll go on the offensive.
You have to applaud Mason's vision. He expanded the Groupon model, following Overstock.com into reselling surplus, clearance, and closeout merchandise that manufacturers need to clear out.
The move pads revenue and dilutes margins, but it also frees the company from being entirely at the mercy of restaurants, spas, and stores willing to sell a dollar bill for a quarter.
Mason also moved to make the most of the company's connections with more than 250,000 local merchants. Last year it began to take advantage of its line to small businesses by offering credit card processing and other enterprise services.
What more could you ask out of Mason? It will be very hard for the next CEO to try to do things differently and succeed.
This didn't seem like such a bad move when Groupon went public as a $12 billion company, but now it seems critical with Groupon's market cap below $4 billion.
Let's back things up a bit. Groupon was able to go public at more than double Google's offer a few months later. It's easy to play revisionist history now, but cashing out would've meant leaving money on the table at the time.
And let's get back to that Google offer. Many sources claim that the ultimate deal breaker for the deal maker was that Google didn't want to pay more than $800 million as a breakup fee if regulators blocked the deal.
Google didn't want to pony up more bail money because it had to know that there was a pretty good chance that antitrust regulators would drag their feet. The world's leading online advertising company buying the world's leading daily deals provider?
The Justice Department took nearly a year to approve past purchases including DoubleClick, Motorola Mobility, and ITA Software. This deal would've take even longer, and under the likely scenario that it would've been denied, the daily deals niche would have already been exposed as limited. Groupon wouldn't be able to go public, and it certainly wouldn't have been worth $6 billion.
Mason certainly doesn't deserve CEO of the Year accolades, but he's not the reason that Groupon is unloved these days.
A new CEO won't fix the problem. It anything, a new leader with fresh vision could do more harm than good.
It's the daily deals model that's flawed, and if you think otherwise feel free to use the comments section below to explain how you would fix Groupon if you were in charge. They are looking for an external hire, you know.
Today's Groupon shareholders may have shot the messenger, but they're still left holding the message.