Following another disappointing earnings report, after the close Groupon Inc (NASDAQ:GRPN) announced that the company’s founder and CEO, Andrew Mason, is being replaced on an interim basis by Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis in a newly created Office of the Chief Executive and that its board of directors has initiated a search for a new CEO. Shares were up close to double digits in after hours trading on Thursday as a result of the news. On Fridays shares were up 3% at the time of this writing.
Many do not find this announcement as surprising considering several news reports last November that the board held a meeting to discuss his future at the company and considering the disappointing financial results and stock price performance since going public 15 months ago at $20 per share, which hardly surprises us.
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Analysts at Barclays view the board’s decision as likely the right one considering the significant and ongoing changes in Groupon’s business model and need to have a CEO that has greater experience in managing a large global business undergoing a turnaround/transformation. That said, they maintain their underweight rating given ongoing challenges in the company’s international business and the significant and still uncertain changes in the company’s business model, which is negatively impacting profitability and visibility. they also continue to see downside risk to management’s CY13 guidance and consensus estimates, and believe Groupon Inc (NASDAQ:GRPN)’s CEO transition will add to the company’s challenges near-term. This is a point we mentioned in our article linked above (which was titled Groupon=$20B of Snakeoil )(although now the number would be closer to $3B)).
Andrew Mason replaced; still cautious on Goods mix shift Earlier today, Groupon announced a management change in which Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis were appointed to the newly created Office of the Chief Executive on an interim basis, replacing Andrew Mason as CEO. Groupon has commenced a search for a permanent CEO. The announcement will likely be perceived positively by the street (stock up 4% in the aftermarket), but it does not change our cautious view on Groupon’s business model mix shift to Groupon Inc (NASDAQ:GRPN) Goods, which is pressuring GMs and creating more long-term profit uncertainty.
New CEO increases likelihood of another earnings reset
The appointment of a strong CEO could be a catalyst as bulls may argue that a new CEO will improve execution and better capitalize on Groupon’s impressive global scale. While this may be true over the long term, Morgan Stanley analysts think the near term probability of another earnings reset has increased as they anticipate a new CEO to re-calibrate Groupon’s sequential profit improvement outlook after an operational review. While Groupon reiterated its 2013 outlook, they think it will be very difficult for Groupon to deliver y/y CSOI growth given the sales mix shift to the lower margin goods business.