As Revenue Exceeds Estimates, Groupon Plans $300 Million Share Buyback

The company, which also announced a $300 million share repurchase program on Wednesday, reported a better-than-expected 7 percent jump in second-quarter revenue to $608.7 million, as sales in the United States and Canada climbed 45 percent.

Lefkofsky, who was named interim CEO in February, has pushed on with his mobile-centric strategy since fellow founder Andrew Mason was replaced in February. The former CEO had presided over a precipitous share price decline to below $5 from its $20 debut in 2011.

The stock, which has gained 80 percent in 2013, rose to $10.35 in after-hours trade on Wednesday, its highest since July 2012.

"I think the news about installing Lefkofsky played a big part," said Tom White, an analyst at Macquarie Research. "Investors have been very impressed by the progress he's made since being made interim head and improving metrics particularly in the North America business."

With its core daily deals business model in steep decline, Groupon in recent months has re-invented itself as a more traditional e-commerce business that sells long-term deals, particularly through its smartphone app.

Lefkofsky and other executives told Wall Street analysts on Wednesday that emailed deals, once the linchpin of Groupon's sales strategy, now only accounted for 40 percent of its quarterly revenue. Instead, Groupon's customers were increasingly logging into the site to search for goods they were actively seeking, they said.

"It was only a few short years ago when email was all of the business," Chief Financial Officer Jason Child said. "The good news for us is we see our most active cohort of customers engaging with the marketplace most often. They're browsing, they're searching, they're going in and typing in keywords."

The difference, Lefkofsky added, was that Groupon was transforming from a "demand-generation business to a demand-fulfillment business."

But company management warned it would take several quarters for Groupon to complete its shift in direction and fully enter and compete in an intensely competitive and crowded e-commerce marketplace dominated by giants like Amazon Inc and eBay Inc.

For Groupon to succeed, Lefkofsky said it needed to focus on refining its algorithms to present goods relevant to a user's interests, while also improving its product suite for sellers, which includes rewards tracking programs and credit card processing tools.

BY THE NUMBERS

Groupon's gross billings, or the total value of purchased goods and services - of which the company takes a cut - rose 30 percent in North America, outpacing a 10 percent expansion rate overall.

About 50 percent of its North American transactions came through smartphones and tablets, versus 30 percent a year ago, the company said.

Groupon's success with mobile adoption has been viewed with particular favor on Wall Street. Groupon shares jumped 11 percent on June 14 when Deutsche Bank analysts upgraded the stock, attributing their optimism to the company's progress on the mobile front.

Groupon's revenue in the United States and Canada in the second quarter grew 45 percent, offsetting a 24 percent slide in Europe, the Middle East and Africa (EMEA) and a 26 percent fall everywhere else.

Child told Reuters on Wednesday that while Groupon's international performance has been weak, the company's investment in shoring up its European operations will pay off soon.

"North America continues to see strong growth and we made good progress in EMEA which flipped to positive gross billings growth," Child said. Gross billings in EMEA grew 4 percent in the second quarter. "We're now shifting our focus to the rest of the world."

The Chicago-based company reported quarterly revenue of$608.7 million compared with $568.3 million a year ago. Analysts on average expected $606.2 million in revenue, according to Thomson Reuters I/B/E/S.

It posted a second quarter net loss of $7.6 million, or 1 cent per share, compared with a year ago profit of $28.4 million, or 4 cents a share.

Excluding one-time items, it earned 2 cents a share, level with analysts' expectations.

(Reporting by Gerry Shih; Editing by Carol Bishopric)

Groupon Names a New Chief and Logs a Loss of $7.6 Million

Mr. Lefkofsky had been chairman and interim co-chief executive, with Ted Leonsis, the vice chairman, since Mr. Mason’s ouster. Mr. Leonsis will now be chairman.

Groupon, an online deals site, also reported second-quarter results on Wednesday. It posted a loss of $7.6 million, or 1 cent a share. That is down from earnings of $28.4 million, or 4 cents a share, in the second quarter of 2012.

Adjusted earnings, which exclude stock compensation expenses, were 2 cents a share in the latest period. That matched analysts’ average expectations, according to FactSet.

Revenue rose 7 percent to $608.7 million from $568.3 a year earlier. Analysts had expected $606.2 million, according to FactSet.

For the current quarter, Groupon, which is based in Chicago, predicted adjusted earnings in the range of a loss of 1 cent to a profit of 1 cent a share on revenue of $585 million to $635 million. Analysts had forecast earnings of 5 cents a share, on revenue of $621.5 million.

The company announced plans to repurchase $300 million of stock in the next two years.

Groupon built its business on e-mailing daily discount deals for restaurants, spas and nail salons to users and taking a cut of the money businesses make from them. To diversify, the company has expanded into product sales, payments services and other areas. Last month, it started Groupon Reserve, which lets people make restaurant reservations at a discount.

Groupon’s stock jumped $1.67, or 19 percent, to $10.39 in after-hours trading on Wednesday. It had closed regular trading at $8.72, up 79 percent since the start of the year.

Groupon Narrows Its Loss After String of Disappointing Results

The company also reported that its net loss in the first quarter narrowed from a year earlier.

Shares of Groupon jumped 10.6 percent, or 59 cents, to $6.18 in after-hours trading.

Groupon said its first-quarter revenue rose 7.5 percent, to $601.4 million, from $559.3 million a year earlier. Groupon was expected to generate revenue of $590 million, according to analysts surveyed by Thomson Reuters.

The company posted a net loss of $4 million, or 1 cent a share, in the latest quarter, compared with a net loss of $11.7 million, or 2 cents a share, a year earlier.

Consolidated segment operating income, a closely watched measure of Groupon’s profitability, came in at $51.2 million in the latest period. Mark Mahaney, an analyst at RBC Capital Markets, was expecting this figure to be about $26 million.

Groupon’s North American revenue jumped 42 percent, while international revenue fell 18 percent.

“Revenues were slightly better than expected, with North America growth a lot better, while international is definitely still slower,” said Aaron Kessler, an analyst at Raymond James.

The company, one of the most celebrated Internet market debutantes of 2011, fired Andrew Mason, its co-founder and chief executive, in February after a string of disappointing results wiped out three-quarters of its market value. Groupon, which has lost several other key executives, is seeking a new permanent chief executive.

Ted Leonsis, the company’s interim co-chief executive, said on Wednesday that Groupon’s board had formed a special committee that had begun a search for a new chief.

Groupon’s current leadership team is “gelling very very nicely,” giving the search committee more time to find “the ideal long-term C.E.O.,” Mr. Leonsis said in a conference call with analysts and investors.

Groupon shares hit a record low late last year, but have rallied strongly since then, partly because Tiger Global, a top technology-focused hedge fund firm, took a stake of about 10 percent in the company.

Under Mr. Leonsis, and his counterpart, Eric Lefkofsky, Groupon is trying to turn around its struggling European business, while continuing to expand in the United States. Analysts expect a slimmed-down company under the new leadership.

Groupon Shares Fall 25% in Late Trading

The forecast fed investor worry that people were tiring of the many online restaurant, spa and Botox deals that Groupon built its business on, and that the company’s efforts to broaden into an e-commerce powerhouse had not been paying off.

Groupon, based in Chicago, booked a loss of $81.1 million, or 12 cents a share, in the October to December period. That compares with a loss of $65.4 million, also 12 cents a share, in the fourth quarter a year earlier, when it had fewer shares outstanding.

Analysts expected a loss of 2 cents a share, according to FactSet.

Revenue rose 30 percent to $638.3 million from $492.2 million. Wall Street expected revenue of $639.8 million.

For the current quarter, Groupon expects revenue of $560 million to $610 million, which translates to a range of flat to 9 percent higher than in the year-earlier period. Analysts expected revenue of $646.8 million.

Gross billings, a closely watched figure that shows the total amount customers spent on Groupon’s deals, increased 24 percent in the quarter to $1.52 billion from $1.23 billion a year earlier.

“Record billings growth this quarter is a clear signal that customers love Groupon,” said Andrew Mason, the company’s chief executive, in a statement. “We will continue to invest in growth through 2013 as we see new opportunities to give our customers what they want.”

Groupon’s stock fell as much as $1.56 to $4.41 in after-hours trading. Earlier, the stock closed up 43 cents at $5.98 before the release of the earnings report.

Groupon Dismisses Chief After a Dismal Quarter

A day earlier, Groupon reported weak fourth- quarter earnings, which caused investors to shave off a quarter of the Chicago company’s value. The news about Mr. Mason, released after the market closed, sent shares up more than 4 percent in late trading.

In a note to Groupon employees that was typical of his sassy style, Mr. Mason wrote: “after four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding — I was fired today.”

He added, “If you’re wondering why ... you haven’t been paying attention.”

Groupon said in its earnings call that first-quarter revenue would be about 10 percent lower than analysts were expecting, among other disappointments.

Jordan Rohan, an analyst with Stifel, Nicolaus, said Mr. Mason’s exit “was long overdue.”

“I view Mason as a visionary idea generator,” Mr. Rohan said. “Few would argue with how impressive the Groupon organization was as it grew. However, at some point it became the overgrown toddler of the Internet — operationally clumsy, not quite ready to make adult decisions.”

Mr. Mason, who dodged a potential dismissal in November, will be temporarily replaced by Eric Lefkofsky, Groupon’s executive chairman, and Theodore J. Leonsis, its vice chairman, while they search for a replacement.

Now 32, Mr. Mason had a wild ride. Unlike many Silicon Valley entrepreneurs, he never seemed to dream about building a huge company or even becoming fantastically wealthy. Groupon was an outgrowth of a start-up, the Point, which was aimed at encouraging charitable actions by groups. In late 2008, Mr. Mason and a few colleagues reformulated it as a deals shop.

Over the years, Silicon Valley start-ups had tried many forms of deal sites, but Groupon was the first to really make it work, and did so instantly. The formula was simple and compelling. People were sent e-mails of offers for, say, a local restaurant. If they bought it, they got a bargain, Groupon got a commission and the restaurant won new patrons.

In two years, Mr. Mason was turning down a reported $6 billion offer from Google. As a reminder that fate is fickle, he put in the reception area of Groupon’s offices a gallery of framed magazine covers featuring Napster, Myspace and other tech wunderkinds that ultimately faded. To these losers, he then added a cover that featured Groupon.

“Our marketing guy thought we should put some press on the wall, but I didn’t want an atmosphere of popping the Champagne,” Mr. Mason told Chicago Time Out in 2010. “We still have a mountain to climb, and other iconic companies will be a footnote in history.”

On the first day of trading after Groupon’s public offering, in late 2011, the company was valued at $16.5 billion. It was the most talked-about tech debut between Google and Facebook. The actors, stand-up comics and other creative types who made up much of Groupon’s early team watched in wonder. The company had a loose, informal style, with an editorial team as large as a midsize newspaper. Writers labored over the gags that introduced the deals. The one for a dentist started like this: “The Tooth Fairy is a burglarizing fetishist specializing in black-market ivory trade, and she must be stopped.”

But then the competition intensified, the criticism began and the stock struggled. Groupon’s market value is now $2.97 billion.

Groupon has 10,000 employees in 48 countries. Mr. Rohan, the analyst, said the new chief executive “will have to refocus the company on the most productive markets with the most productive sales people.” He added, “Groupon needs to give up on the grand vision of becoming an operating system for local commerce and instead be the best daily deals provider it can be.”

Even as the daily deals sites struggle financially — the No. 2 company, Amazon-backed LivingSocial, is in worse shape than Groupon — the number of digital coupon users in the United States continues to rise, according to eMarketer. An estimated 92.5 million Americans redeemed a digital coupon in 2012, up 4.9 percent from 88.2 million in 2011.

No surprise there, said Sucharita Mulpuru, an e-commerce analyst with Forrester Research. “Who doesn’t like 50 percent off something? The question was always how you create good consistent deal flow from merchants.”

She noted that in his letter, Mr. Mason talked about what was best for the customer. “They think their customer is Joe Smith who buys the Groupon,” Ms. Mulpuru said. “But the customer is the merchant. They have been focusing on the wrong person.”

Indeed, merchants got a lot of attention for complaining how successful deals came close to ruining them.

Mr. Mason’s letter was in the blunt tech tradition of a former Yahoo chief executive, Carol Bartz, who sent an e-mail to the search engine’s employees in September 2011 saying, “I’ve just been fired.”

In his letter, Mr. Mason wrote: “I’m o.k. with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first-ever play-through.” He added that he was looking for a good fat camp to lose the 40 pounds he had gained at Groupon.

Mr. Mason’s letter was very well received on Twitter, with people applauding his honesty as much as his sense of humor.

Mr. Mason himself retweeted a comment that said: “First the pope and now Andrew Mason!?! Our esteemed leaders are falling like flies.”

This article has been revised to reflect the following correction:

Correction: March 1, 2013

An earlier version of this article referred imprecisely to Groupon’s valuation at its initial public offering in 2011. The company’s value reached $16.5 billion after the first day of trading, not with the offering itself, which valued the company at $12.65 billion.

DealBook: Groupon Moves Into Restaurant Reservations With Savored Deal

Over recent months, Groupon has sought to expand its core business of daily deals with a number of new business propositions, including with ventures like a mobile payment system.

Now, it appears that the online coupon purveyor is moving into restaurant reservations — and a little into OpenTable‘s domain.

Groupon said on Monday that it had bought Savored, an Internet start-up that offers customers ways to reserve tables at restaurants in 10 cities across the country. Terms weren’t disclosed.

Unlike its more established competitor, OpenTable, however, Savored offers discounts for its customers. The business model is a bit like Hotwire.com’s, in that Savored scans for openings at its partner restaurants and offers discounts — up to 40 percent, according to Groupon, though the company’s own site describes the savings as “uncapped” — to customers.

The proposition is that both sides win: restaurants get patrons they otherwise wouldn’t, and customers get both dining reservations and a discount.

Savored is meant to supplement the existing Groupon Now service, which is aimed at giving customers a list of discounts should they decide to indulge in impromptu shopping. The bigger goal is in turning Groupon into more than just a sender of daily deal e-mails: it’s to transform the company into a broad platform for merchants, allowing them to provide discounts, book restaurant reservations and travel packages and track customer spending.

“Savored’s platform nicely complements Groupon’s efforts in yield management, an area we’ve pioneered with Groupon Now,” Dan Roarty, the vice president of Groupon Now, said in a statement. “We look forward to working together to achieve a common goal – making dining out even more fun and affordable for consumers while helping restaurateurs manage inventory and grow their businesses.”

So far, however, investors haven’t really taken the pitch to heart. Shares of Groupon were down 2.3 percent in late afternoon trading on Monday, at $5.15, and have plummeted more than 80 percent since the company began trading last fall.

Common Sense: Sites Like Groupon and Facebook Disappoint Investors

Just a year ago, social media seemed the next big thing. With dizzying user growth at Twitter, Zynga and especially Facebook, investors were euphoric about Internet sites that connected people with shared interests and experiences, seemingly the perfect media for targeted advertising.

The professional networking and job search site LinkedIn was first to test the public’s appetite when it went public in May 2011. Its shares more than doubled to close at $94.25 after trading as high as $122.70 that first day.

Early investors were understandably giddy, but others, like the former Treasury secretary Lawrence H. Summers, sounded a cautionary note. “Who could have imagined that the concern with respect to any American financial asset, just two years after the crisis, would be a bubble?” Mr. Summers asked at the time. Over the last year, Internet companies like Groupon, Zynga and Yelp made their public debuts. Facebook followed in May at $38 a share, instantly giving the newly minted public company a valuation of nearly $105 billion. Since then, euphoria has given way to mounting anxiety.

Facebook hasn’t closed above $38 since. The initial offering was widely deemed a debacle both for trading glitches and for the need for underwriters to prop up the stock.

The shares’ subsequent decline accelerated after the company’s first earnings report as a public company late last month dashed investors’ hopes for torrid growth.

This week was the end of the lockup period, which barred insiders from immediately selling their shares, and Facebook shares hit a new low, slumping to $19.05.

Other Internet companies have fared even worse.

Like Facebook, the Internet discount coupon site Groupon increased its offering price and number of shares just before its public debut last November. After rejecting a $6 billion takeover bid from Google in December 2010, Groupon shares closed at $26.11 on its first day of trading, up from its $20 offering price, giving it a market value of $13 billion.

It has been pretty much downhill ever since. On Friday, Groupon shares fell to $4.75, a decline of more than 75 percent from its offering price, giving it a market capitalization of just over $3 billion, barely half what Google offered.

Zynga, a company that makes online social games, went public in December at $10 and dropped 5 percent its first day. Although it traded above $14 a share as recently as March, it ended the week at $3, down 70 percent.

Shares of even the best-performing social media sites have stagnated. Yelp’s shares, which jumped 64 percent on their first day of trading in March to close at $23, were below $22 this week. And LinkedIn, considered by many to be the gold standard for social media concerns, never again hit its opening peak, and ended the week below $102.

Twitter and LivingSocial have put the brakes on going public; the companies have recently said they’re in no rush. That’s hardly surprising.

What went wrong?

Every company has its own story, but the euphoria over social media companies as a group was rooted in what economists call the network effect. The more users a site attracts, the more others will want to use it, which creates a natural monopoly and a magnet for advertisers.

Facebook has been a classic example. If your friends, colleagues or classmates are all on it, you’re all but compelled to join. But evidence that the network effect is working requires rapid growth in users and revenue, especially during the early stages of a company’s public life. So far, social media has failed to deliver the kind of growth that would bolster investor optimism, let alone euphoria.

The network effect is a double-edged sword, Ken Sena, a consumer Internet analyst at Evercore, told me this week.

“The network effect allowed these companies to grow so fast, but the decline can be just as ferocious,” Mr. Sena said. “If any of them misstep with users, they can leave, and the network effect goes into reverse.” The textbook case is Myspace, once the most visited social networking site, that is now a shadow of its former self.

This week’s Groupon earnings illustrated the problem for social media companies. In theory, Groupon should benefit from the network effect. The more users it attracts, the more merchants will want to offer coupons through Groupon, and vice versa. And on the face of it, the earnings report looked good. Groupon earned a profit of $28.4 million for the quarter, above analysts’ expectations, reversing a loss a year ago. Groupon’s boyish-looking chief executive, Andrew Mason, called it a “solid quarter.”

Merchants and Shoppers Sour on Daily Deal Sites Like Groupon

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DealBook: Groupon Shares Hit New Low in Latest Plunge

4:29 p.m. | Updated

Another day, another sell-off at Groupon, it appears.

Shares in the company touched new lows on Wednesday, diving 6.5 percent. Groupon’s stock closed down 54 cents, at $7.77, after trading as low as $7.72. That is well below its initial public offering price of $20 a share.

Wednesday’s closing price values Groupon at a little over $5 billion, less than a third of the $16.5 billion market capitalization it had at the end of its first day of trading in November, when the stock closed at $26.11.

The company has had a tough time in the public markets since going public. Shares in Groupon have tumbled 70 percent since the daily deals pioneer’s initial public offering.

It isn’t quite clear what lay behind the latest sell-off, since Groupon hasn’t been a fixture in the news of late. Its chairman, Eric Lefkofsky, wrote in a blog post last week that he was reducing his day-to-day responsibilities at the company to focus on his own investment firm.

But investors have long been wary of the company, skeptical that its business model will prove profitable in the long run and that its current management team is capable of leading a major public corporation. A number of issues, including disclosed weaknesses in its internal financial controls and a restatement of its earnings, haven’t helped.

Investors may have to wait until August to see if there’s any more bad news to come out.