Groupon Revenue Tops Estimates, Lefkofsky Named CEO

Photographer: Tim Boyle/Bloomberg

Groupon Inc. headquarters in Chicago, Illinois. Close

Groupon Inc. headquarters in Chicago, Illinois.

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Photographer: Tim Boyle/Bloomberg

Groupon Inc. headquarters in Chicago, Illinois.

Groupon Inc. (GRPN) named Eric Lefkofsky as chief executive officer, entrusting the future of the struggling daily-deals company to a controversial co-founder whose comments drew regulatory scrutiny ahead of its initial public offering.

The shares rose as much as 19 percent in extended trading. The Chicago-based company, the largest daily-deals website, announced the new CEO in its earnings release for the second quarter, reporting a 7.1 percent rise in sales to $608.7 million and a smaller-than-projected net loss of $7.57 million, or 1 cent a share.

Groupon, which lost 87 percent of its value in the year after going public in November 2011, has rallied this year as Lefkofsky and Ted Leonsis, who were among the board members who ousted Andrew Mason as CEO in February before becoming interim co-CEOs, seek new areas of growth, including deals sold via smartphones and tablets.

Lefkofsky is also the company’s largest shareholder, with a 17 percent stake, according to data compiled by Bloomberg. In 2011, Lefkofsky caused a ruckus when he told Bloomberg News just after Groupon filed its prospectus that he expected the company to be “wildly profitable.” Groupon later updated its IPO filing, telling investors to disregard the comments.

“They certainly picked someone who’s been there since day one,” Tom Forte, an analyst at Telsey Advisory Group in New York, said in an interview. “He’s extremely familiar with the business.”

Groupon Rises

Analysts on average were projecting a second-quarter net loss of 3 cents a share on revenue of $606.1 million, according to estimates compiled by Bloomberg. A year earlier, the company had net income of $28.4 million, or 4 cents, on sales of $568.3 million.

Groupon rose in extended trading to $10.34. The shares advanced less than 1 percent to $8.72 at the close in New York, leaving them up 79 percent this year.

Groupon makes money by offering discounts -- known as Groupons -- from businesses such as restaurants and nail salons. It then shares the revenue with the businesses.

The company is benefiting from a move away from daily discounts sent via e-mail, and toward offers delivered to users via mobile devices.

“The consumer, instead of being able to choose one a day, can choose 40,000,” Forte said.

Mobile Push

Almost 50 percent of North American transactions in June came from mobile devices, up from 30 percent a year earlier, the company said in the statement. More than 50 million people have downloaded mobile applications globally.

Billings, an indicator of future sales, rose 9.9 percent to $1.41 billion during the latest quarter, the company said.

Third-quarter revenue will be $585 million to $635 million, Groupon said. That compares with an average analyst estimate of $621.5 million.

The climb in Groupon shares accelerated in June after analysts at Deutsche Bank AG upgraded the stock, citing optimism that increasing use of the company’s mobile application can boost sales, calling it the “most mobile penetrated e-commerce company we track.”

International sales declined, as revenue fell 24 percent in Europe, Middle East and Africa, and dropped 26 percent in the rest of the world.

Product Introductions

North America continues to see strong growth,” Jason Child, Groupon’s chief financial officer, said in an interview. “Now we’re shifting our focus to the rest of the world as we focus on growth and further capturing opportunities there.”

The company introduced Groupon Reserve, an online restaurant-booking service, last month, challenging existing services offered by OpenTable Inc. (OPEN) and other startups. The reservation service is debuting in 10 cities including New York, Los Angeles, San Francisco and Washington, and will expand in the U.S. and overseas by the end of 2013.

Investors have fueled a surge in Internet stocks this year, driven by more confidence in fledgling business models such as mobile and local advertising. Shares of three of the Web’s top newly minted stocks -- local-reviews site Yelp Inc. (YELP), online real-estate site Trulia Inc. (TRLA) and social-networking giant Facebook Inc. (FB) -- returned an average 130 percent this year through yesterday, compared with a 19 percent gain for companies in the Standard & Poor’s 500 Index.

Lefkofsky got the company off the ground with a $1 million investment in The Point, the predecessor to Groupon, and in 2008 prodded Mason into focusing on the e-commerce startup. Leonsis was named chairman.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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