Groupon at Crossroads After Weak Forecast, Management Shakeup

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  • Shares slide the most in 3 years on sales, profit forecasts
  • New CEO Williams to ramp up investments in marketing

Groupon Inc. shares have plunged to below their 2013 levels, when the board pushed out Andrew Mason as chief executive officer as the company struggled to diversify from its roots in daily deals. It has since cut jobs and sold off stakes in overseas businesses as it transforms into an online marketplace.

Now, as Groupon changes its top management for the second time in as many years and forecast sales that disappointed investors, the company is still at a crossroads. And some analysts are questioning what progress has been made.

“I don’t know that a lot has changed,” said Aaron Kessler, an analyst at Raymond James in San Francisco. “The growth continues to decelerate. Overall metrics are stable but not really improving yet.”

Groupon tumbled the most in three years Wednesday, a day after it forecast earnings and sales for the current quarter that missed analysts’ estimates and shook up its top management. The shares dropped 26 percent to $2.97 at the close in New York, also the lowest price since November 2012. Eric Lefkofsky is stepping down from his chief executive role to become chairman again. The new CEO, Rich Williams, who joined in 2011 from Inc., has been chief operating officer since June after a stint as president for North America. 

While Groupon began as a daily deals e-mail service, the company has since evolved into a broader online marketplace of goods and services, including unpopular items that stores are trying to liquidate, which has put it in competition with retailers like Inc. This market might not be fast-growing or very profitable, some analysts have said.

Is Groupon going “to be a high-growth company? Probably not,” said Sameet Sinha, an analyst at B. Riley & Co. “It’s probably going to be a smaller company from a revenue perspective.”

In an attempt to return to growth, Williams will ramp up investments in marketing at the expense of the bottom line. The new CEO said on the earnings call that Groupon needs to “dramatically shift” its marketing strategy.

Double-Digit Billings Growth

“The notion that we are in some no-growth state is simply incorrect,” Bill Roberts, a spokesman for Groupon, said in an e-mailed statement Wednesday. The company has posted seven straight quarters of “double-digit billings growth” in North America, its biggest region, he said. “There’s significant room for better growth rates going forward, which is why we are choosing to invest in marketing to drive customer acquisition and engagement.”

Results for the current fourth quarter may range from a loss of 1 cent to earnings of 1 cent a share, excluding some items, Groupon said. Analysts anticipated profit of 7 cents on average. The company expects sales of $815 million to $865 million, trailing the average prediction of $956 million.

Third-quarter profit excluding some items was 5 cents a share, topping the 2-cent average of analysts’ estimates compiled by Bloomberg. Sales declined to $713.6 million, missing projections for $733 million.

During his two years as CEO, Lefkofsky tried to turn the company around. He’s lowered costs and refocused on the U.S., reducing Groupon’s stakes abroad. In September, Groupon said it would cut about 1,100 jobs and exit seven countries. Its stock is now down 64 percent this year, following a 30 percent drop in 2014.

“Groupon is now saying, ‘OK, we need to grow new customers,’ and they’re investing more in it, and people are concerned that money will go to waste because there’s too much competition,” said Sinha at B Riley. 

In an phone interview after the earnings results Tuesday, Williams said he will stay the course of his predecessor, streamlining international operations and possibly cutting some jobs.

“Our work is definitely not done, there’s a lot for us to do,” Williams said. “I’ve been here almost 4-1/2 years, I have the benefit of not needing the proverbial 100 days, I know what we need to do.”

Deals Possible

Groupon could either plod on alone, or be acquired as a whole or in parts, said Peter Krasilovsky, an analyst at researcher BIA/Kelsey.

“A company like an American Express or any large provider of services for small businesses could have a lot of synergies with Groupon,” he said. “There’s some gold that they could have with their list.”