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Groupon Forecast Misses Estimates, Raising Pressure on CEO Mason

Published: February 28, 2013 | 8:11 am
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Groupon Inc. (GRPN)’s disappointing sales forecast underscores the revenue-growth challenge facing Andrew Mason, whose board has already considered replacing him as chief executive officer of the world’s largest daily-coupon seller.
The shares slid as much as 29 percent in extended trading yesterday after Groupon said first-quarter revenue will be $560 million to $610 million. Analysts on average had predicted $647.7 million, according to data compiled by Bloomberg.

As demand for online discounts fades, Mason is sharpening a focus on Web retailing in an effort to boost growth and keep his job — Groupon’s board discussed ousting him in November. Though Mason is working to lessen the company’s reliance on coupons, his efforts so far have failed to meet expectations, said Edward Woo, an analyst at Ascendiant Capital Markets LLC.
“This is still a big work in process for them to transform from just a daily deal business to a local e-commerce engine,” Woo said. “The guidance for the first quarter is much weaker than people expected.”
Fourth-quarter sales were $638.3 million, Chicago-based Groupon said in a statement, while analysts had projected $640.2 million. The fourth-quarter net loss widened to $81.1 million, or 12 cents a share, from $65.4 million, or 12 cents, a year earlier. Analysts had estimated a net loss of 2 cents. Sales in the fourth quarter of 2011 were $492.2 million.

Shares Tumble
Groupon shares dropped as low as $4.25 following the report. The stock had advanced 7.8 percent to $5.98 at yesterday’s close in New York. It has declined 70 percent since the company’s initial public offering in November 2011.
The company generates revenue by offering discounts — known as Groupons — from businesses such as restaurants and nail salons. It then shares the revenue with the businesses.
At the November board meeting, directors decided to give Mason a few more quarters before beginning a search for his successor, two people familiar with the matter said in January. The lower-than-predicted forecast for the first quarter may bode ill for his prospects.
“He’s here today,” Paul Taaffe, a Groupon spokesman, said in an interview yesterday when asked if the results would affect Mason’s role.

Groupon Goods
Groupon Goods, a service started in 2011 to help retail companies such as Dell Inc. (DELL) and Garmin Ltd. (GRMN) peddle thousands of marked-down items via two-day sales, is on track to reach about $2 billion in annual billings, Groupon said in the statement.
E-commerce sales will be slower in the current quarter than in the previous period because of a drop in demand following the holiday shopping season, Chief Financial Officer Jason Child said in an interview.
“The first quarter is lighter than expected because the Goods business is now at a $2 billion run rate,” Child said. “At that size, we are now seeing seasonality.”
Groupon Goods is growing slower than some analysts expected in part because the company hasn’t decided which products are best to sell using the service, said Sameet Sinha, an analyst at B. Riley & Co.
“They are testing what goods work and what don’t — they are getting the right mix,” he said.
International revenue in the fourth quarter fell 16 percent to $263 million, the company said. Billings outside the U.S. rose 6.2 percent to $801.5 million. The company promoted a new chief operating officer, former EBay Inc. (EBAY) executive Kal Raman, in the fourth quarter to jump-start growth in its struggling overseas business.
Tiger Global Management LLC, the $8 billion hedge fund run by Chase Coleman and Feroz Dewan, said in November it acquired a stake of about 10 percent in the daily deal site.

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

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

bloomberg.com

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