November 28, 2012

Missing in Action - Groupon's CEO Andrew Mason


Andrew Mason was scheduled to deliver a keynote at Business Insider's Ignition conference yesterday. However, following the session that preceded Mason's, our conference host, rather than announce Mason's session, instead merely sent us off on a break, without a word as to the change in the session schedule. In fact, the session was ignored as if it had never been on the program. Of course the reason for the change was due to another event taking place outside of the Ignition conference - that being the possibility that Mason, the 32 year old CEO and a founder of Groupon, may very well be seeing his last days at the company he started.

We have fond memories of watching Groupon emerge out of nowhere in 2008, and even fonder memories of Mason and his co-founders turning down an amazing Google offer of $6 billion to buy the company in 2010 - with the relatively brash Mason and his team believing there were vaster riches to be had in the land of IPOs. But Groupon has always been an iffy business and revenue model, one that was full of inconsistencies both during its pre-IPO period and remains even more so now. 


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The stock did IPO at $20 to much fanfare and a $12 billion valuation. But the stock has since taken a beating worthy of a punch-drunk prize fighter on the last real day of his career, dropping like a lead balloon. On top of a non-trivial revenue slowdown, the company has also had to face up to a number of serious accounting issues and a revolving door on the senior management front. During the company's most recent earnings call it noted a loss of $2.98 million and slowing revenue growth amid weakness in its European business. As we write this morning before the market opens, the stock is sitting at $4.11. That represents a huge 80 percent drop from the giddy IPO days.

None of this should be surprising. The IPO happened as part of a mini-bubble mentality fueled by both Groupon's early success and Google's initial offer - which in a sense legitimized Groupon very early on, long before it should have been. Groupon continues to fail to prove it has a sustainable business model, and it operates in a business where the real "technology" is a huge sales force of essentially low tech sales folks drumming up business. It was the least techie tech IPO we've ever seen.

Finally, we've not seen Groupon deliver any capability that cannot simply be duplicated by anyone - there is no real secret sauce to Groupon, whose main business continues to be offering discounted online coupons for use by consumers with local merchants. The "local" was the initial secret sauce, but as it turns out it isn't a sustainable secret sauce. All of this spelled longer term failure to us and now we're at the point where reality catches up and hype proves to be exactly that - hype. A classic bubble experience.

Groupon's Board Meeting

The Groupon board will be meeting tomorrow, Thursday, November 29, 2012. It is a regularly scheduled meeting, but due to the punch-drunk state of its stock and an ugly slow-down in revenue, it is expected to take into strong consideration a real changing of the CEO and management team guard. It has come down to this. We note here that much of this Groupon news comes from unnamed sources that briefed other unnamed sources. And we must also note here as well that Mason being dumped is nothing more than speculation - following Thursday's meeting he may very well still be at the helm (and he can go back to delivering keynotes at conferences).

Mason and his two co-founders - Eric Lefkofsky and Brad Keywell, all sit on the Groupon board and the three of them have apparently been up in arms with each other. Lefkowsky and Keywell, through their VC firm Lightbank, own 23 percent of Groupon's stock. Mason owns seven percent. Lefkofsky in particular, along with other board members have become greatly discouraged with the stock performance. They are also apparently unhappy with Mason's ongoing failure to provide a solid defense for any of Groupon's near- or longer-term strategies. To us that is hardly surprising.

Groupon continues to experiment with new approaches to driving revenue. Among the things it is trying are new coupons that never expire. But the problem with Groupon is fundamental - it has no secret sauce that cannot be duplicated and entirely undercut by other vendors. A change in CEO will make no difference. Groupon's existence is based on a specific business model that is no longer working - no one acquired Groupon stock because it had an amazing ability to generate new revenue ideas.

The best place for Groupon would have been under Google's safe harbor - where it might have been able to focus on ideas instead of having to cater to meeting the demands of investors as a public company. It was nothing short of "stupid" to turn down $6 billion dollars - we note this unequivocally. Some rumors have it that Mason was in favor of accepting Google's offer in 2010, but was persuaded not to. To the persuaders go the current spoils - or lack thereof.




Edited by Brooke Neuman



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