Groupon CEO deals in looking forward

E-commerce company starting to realize vision. Stock has fallen, but growth reported.

CHICAGO – In spring 2011, Groupon Inc. was said to be worth as much as $25 billion — an amazing valuation for a company that still isn’t four years old.

Today, the Chicagobased daily deals pioneer is no longer the same tech darling. Groupon has kept growing, but an onslaught of criticism about its business model has come at a real price. The company that was worth $13 billion when it went public in November now has a market capitalization of $3 billion. Groupon’s stock is down nearly 80 percent year-todate.

So what is an investor to think? From Chief Executive Andrew Mason’s point of view, the company he built from scratch is flying high and is just starting to realize its vision of bringing local commerce online.

“We’re growing 45 percent year over year,” Mason said last week. “I think most companies would kill for those kinds of growth rates. We’re quite proud of them.”

Assessing Groupon’s growth prospects and long-term viability isn’t easy, especially because the daily deals business is such a new industry. Many analysts pointed to a slowdown in quarter-on-quarter revenue growth as a warning sign that Groupon’s core business of selling discounted restaurant meals and massages is losing favor with consumers.

Defending himself against the critics, Mason said they are using the wrong criteria.

“We’re an e-commerce company that does over $5 billion in sales every year, and like every other e-commerce company that’s operating at this scale, you have to look at us at a yearover-year basis,” Mason said. “Amazon has some- thing like two quarters a year of negative quarterly sequential growth. It’s simply the wrong way to evaluate an e-commerce company.”

The Amazon comparison is appropriate, Mason maintained, saying he believes “Groupon has the opportunity to be the world’s first marketplace for local commerce in the same way that Amazon is the dominant marketplace for retail commerce.”

These ambitions have propelled the company into a number of new categories beyond connecting local stores and spas with consumers. Groupon now offers deals on travel and physical goods.

For Edward Woo of Ascendiant Capital Markets, the diversification could prove to be a necessary buttress against what he believes is a slowdown in Groupon’s main business.

“It seems that their core daily deals business declined [in the second quarter] and it declined on a sequential basis,” said Woo, who has a “sell” rating on Groupon’s stock. “Andrew says, ‘Don’t look at us on a quarter-onquarter basis.’ The reason he says that is quarter-onquarter, they went down. The sense that they’re growing overall is good, [but] they’re not going to get growth everywhere. Unfortunately, I’m pretty negative on the daily deal space. I think it’s saturated; there’s a lot of fatigue. I think it’s good that Groupon is branching out.”