Groupon Inc's latest financial results raise new questions about the daily deals company's business model and whether Chief Executive Andrew Mason is the right person to fix it.
The company missed second-quarter revenue expectations on Monday for the second time in three quarters as a public company.
Now, analysts say investors' patience is wearing thin as Mason strives to turn around the company's international business and sustain North American growth. The 31-year-old music graduate has often drawn criticism for his quirky antics in Groupon's early days, from downing a beer during staff meetings to insisting on employing unusual accounting methods.
"Investors may be beginning to question management credibility," Scott Devitt, an analyst at Morgan Stanley, said.
Groupon's shares slumped 27 percent to a record closing low on Tuesday and are down more than 70 percent since the company went public in November at $20.
The sell-off caps months of tumult for investors that have included an accounting investigation in the middle of its initial public offering.
"This management team doesn't yet have an execution track record," Citi Research analyst Mark Mahaney said on Tuesday. "In the meantime, the core Daily Deal business is sharply slowing."
Several shareholders declined to comment on Tuesday. But the company is at a pivotal stage as it reshuffles management and expands into new areas to offset a dwindling daily deals business. One past Groupon backer said that switching helmsmen would be counter-productive.
Groupon grew rapidly as a private company by offering big daily discounts on local services, such as restaurants, to millions of online subscribers. That business is slowing and rivals from Google Inc to Amazon.com Inc are getting into the market.
Mason's plan involves expanding into new areas such as consumer product sales, and becoming what he calls the "operating system" for local commerce.
Potential returns on the investments needed to build this local commerce platform will not be known for some time, Mahaney said.
A Groupon spokesman and a spokesman for the company's board declined to comment. Major shareholders and individual directors of the company also declined to comment or did not respond to phone messages and emails seeking comment.
INGENUE?
With little previous experience running companies, Mason oversees a business with more than 10,000 employees and operations in 48 countries.
He has tried to avoid conforming to Wall Street's typical view of a CEO, but his quirky approach may have exacerbated concerns, according to some analysts.
While Groupon was still a private company, Mason was photographed with cats on his head and the CEO reportedly brought a pony to the company's Chicago headquarters ahead of a meeting with New York City Mayor Mike Bloomberg.
During the lead-up to Groupon's troubled IPO, Mason wrote a rallying memo to employees that disclosed new financial details, catching the eye of regulators.
In April, Mason told employees in a webcast town-hall meeting that Groupon needed to grow up.
"He is young, has never run a company before, has been eccentric and has not inspired any confidence," said Sameet Sinha, and analyst at B. Riley & Co. "I would think shareholder grumbling is increasing."
During the second quarter, the European business suffered as the weak economy sapped demand for higher priced daily deals.
Mason told analysts on Monday that Groupon plans to revive its European business by rolling out technology that has already helped make its North American daily deals more relevant to consumers. Groupon is also planning to cut the size of discounts offered to consumers in Europe and make its deals more favorable to merchants in the region.
TOO HOT TO HANDLE
One partner at a venture capital firm who at one point invested in Groupon said now may not be the time to bring in a new CEO.
As a co-founder who retains a large stake in the company, Mason has the passion to fight for the business during tough times like these, the person said. The person was not authorized to speak publicly about Groupon.
Sinha said Groupon may have simply grown too large for Mason to handle - which is why he's seeking expert assistance.
Several key executives have been hired to buffer up Groupon's upper echelons abroad, and analysts say the Street is waiting to see if those hirings bear out.
Among several key changes across the world, Groupon tapped Kal Raman, a former executive at Amazon.com, to run operations in 10 countries. This month, he was promoted to head of worldwide sales and operations.
"He had a good idea - daily deals - and put that in motion," Sinha said. "What he is trying to implement worldwide is a gargantuan undertaking and fraught with risk."
