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Why Groupon Stock Price May Never Recover

Companies / Tech Stocks Mar 01, 2013 - 01:31 PM GMT

By: Money_Morning


Diane Alter writes: Groupon CEO Andrew Mason was ousted by the company after a horrible earnings report and steep drive in stock price.

The Groupon stock price tumbled 26% in after-hours trading Wednesday following the release of a dismal fourth-quarter earnings report, and then plunged another 24% today (Thursday).

It was announced Thursday after market close that Eric Lefkofsky and Vice Chairman Ted Leonsis have been appointed to the newly created Office of the Chief Executive, effective immediately, replacing Andrew Mason. Lefkofsky and Leonsis will serve in this role on an interim basis.

"On behalf of the entire Groupon Board, I want to thank Andrew for his leadership, his creativity and his deep loyalty to Groupon. As a founder, Andrew helped invent the daily deals space, leading Groupon to become one of the fastest growing companies in history," said Lefkofsky.

The Board will start a search for a new Chief Executive.

The mounting misery at Groupon had left many questioning Mason's fate before the announcement.

Last year, the company's board mulled replacing him. The latest results and lackluster outlook sealed the deal for Mason at the Chicago-based company.

Groupon Inc. (Nasdaq: GRPN) posted a net loss of $81.1 million, or 12 cents a share for the fourth quarter, steeper than its year ago loss of $65.4 million. While revenue rose 30% to $638.3 million in line with the company's projections, it fell short of Wall Street expectations. International sales also waned in Q4, slumping 16% from a year ago.

Forward guidance was uninspiring at best. First-quarter revenue is expected to come in between $560 and $610 million, way below the consensus estimate of $650 million.

The pathetic results were followed by a dreary conference call, which CNBC's Jim Cramer called the worst conference call ever.

The worse-than-expected performance, dwindling cash flow and diminishing margins sent investors fleeing. The stock now sits at $4.53 - a far cry from its $20 IPO price.

Former CEO Andrew Mason Does Little to Help
On a conference call following the results, Mason skirted Groupon's fading performance under his helm and focused instead on the changes emerging at Groupon.

"It's hard to believe that just a year ago we were a deal-a-day business. As you can see our business continues to evolve at a breakneck pace, "Mason shared.

As customers became irked with an abundance of deals flooding their inboxes, Groupon moved to diversify in an effort to keep and attract members.

Among new offerings is an e-commerce sale of discounted products ranging from jewelry to electronics through a new business called "Goods."

But that business hasn't delivered the goods expected, and has eaten into Groupon's margins.

Also implemented was a new credit card payment processing service.

"We believe in the potential of a local marketplace business, where you can fulfill demand instead of shocking people into buying something they had no intention of buying when they work-up," Mason said.

Mason admitted Groupon "built a full business" on the shock value of flash deals. Looking forward, Mason sees the combination of Goods and credit card payments as "a much better business opportunity."

Why Groupon Stock (Nasdaq: GRPN) May Never Recover
But none of Mason's words were enough to instill any confidence in investors.

One reason investors are bailing is the increasing trouble Groupon has in finding merchants. The company last year gave select merchants some substantial discounts to encourage them to offer deals through Groupon. While that campaign was helpful in bringing in new merchants, it hurt the bottom line.

In addition, Groupon faces increased competition in its daily deal market. Living Social, which has the backing of behemoth Inc. (Nasdaq: AMZN), Google Inc. (Nasdaq: GOOG), eBay (Nasdaq: EBAY) and Inc.(Nasdaq: OSTK) are just some names muscling in on Groupon's turf.

But one of the biggest reasons for poor Groupon performance is the fact that fewer people are buying deals in general. That prompted Aaron Kessler of Raymond James cut shares to an "Underperform" from a "Market Perform."

Wells Fargo and Co. (NYSE: WFC) analyst Jason Maynard also voiced concern over Groupon stock.

"We are not convinced that unloading overstock goods at very low margins is a good strategy," he said. "We believe that this diminishes the brand, and could drive the more profitable deals to other premium branded sites. More importantly, we think this puts Groupon on a collision course with Amazon."

Since its initial public offering in November 2011, Groupon stock has fallen to just 20% of its IPO price.

Bottom line: Groupon stock offers no deal for investors. We'll see if Mason's replacements can turn things around even the slightest.

Source :

Money Morning/The Money Map Report

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