Groupon Inc (GRPN)’s New CEO To Face Same Challenges

Groupon Inc (GRPN)’s New CEO To Face Same Challenges
By GrouponRUS (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Last week, Andrew Mason confirmed that he was fired from his post as CEO of Groupon Inc (NASDAQ:GRPN) after four challenging years. In his resignation letter, Mason admitted the mistakes he committed while leading the company. He also hoped that his resignation would help the company recover.

Groupon Inc (GRPN)'s New CEO To Face Same Challenges

The stock price of the Groupon Inc (NASDAQ:GRPN) is up by 2.55 percent to $5.23 per share, as of this writing.

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Groupon Inc (NASDAQ:GRPN) is currently searching for a new CEO.  Its executive chairman, Eric Leftkofsky, and vice chairman, Ted Leonsis, are leading the company in an interim capacity.

Edward Woo, an analyst at Ascendiant Capital Markets said Mason’s resignation is not surprising because the media repeatedly reported that fact that he had been scheduled to be replaced in November last year. Woo believes that a new CEO increases near term uncertainties for Groupon Inc (NASDAQ:GRPN), citing its weak results for the fourth quarter, major business transformation and investments.

Woo also emphasized that the new CEO  could bring better skills to the company, but will face the same challenges (slowing daily deals business and competition), which is expected to increase.

According to the analyst, the outlook provided by the company for the first quarter of fiscal 2013 – $560-$610 million revenue and operating income of $10 million – were weak and lower than the consensus estimates.

Woo said, “With slightly worse than expected Q4 results and weak Q1 guidance, some of the recently [growing] investor[s’] optimism for Groupon may fade near term. The company acknowledged that it remains in investment mode and that it is focused on growth over near term profitability.”

According to Woo, Groupon Inc (NASDAQ:GRPN) remain uncertain due to staff turnover, competition, and increased investments. He believed that slowing growth and weak margins would likely increase continued skepticism about the company’s valuation, growth prospects, and profit potential,  even if it has lower valuation and multiples.

He cited the fact that Groupon Inc (NASDAQ:GRPN) lost several key executives in the previous quarters and its stock price has declined by 75 percent since its IPO. He believed that it would be difficult for the company to retain staffs because its employee’s stock option values have been declined. He expects the company to cut jobs this year. The company’s workforce decreased from 11,866 in the third quarter to 11, 394 in the fourth quarter. He also expects the new CEO to reshuffle the company’s senior management team in the future.

Woo maintained his sell rating for the shares of Groupon Inc (NASDAQ:GRPN) and the price target at $3.50 per share. He explained that the price target reflects a P/E of 12x of the research firm’s 2014 EPS estimate of $0.30. The 12x forward P/E is a ~50% discount to the peer group median (24x) for internet advertising companies. He believed that it reasonably reflects the increased execution risk and slowing growth rate of the company.

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