Groupon Fires CEO, Still Faces Underlying Problems

The Groupon logo is seen inside the online coupon company's offices Thursday, Sept. 22, 2011, in Chicago.
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He referred to controversy over its accounting practices, "two quarters of missing our own expectations and a stock price that's hovering around one quarter of our listing price." The stock fell another 24 percent Thursday before the announcement and closed at $4.53, 77 percent below the $20 it started trading at when Groupon went public in November 2011.

"The events of the last year and a half speak for themselves," he wrote. "As CEO, I am accountable."

Groupon, which is based in Chicago, has faced scrutiny about its high marketing expenses and enormous employee base. Its staff has ballooned to more than 11,000, more than that of other Internet darlings such as Twitter, Facebook or Zynga Inc., the other fallen star of the latest swath of Internet IPOs.

Groupon's IPO was one of the most highly anticipated — and controversial — among the social media and Internet companies that began publicly trading in the past year and a half. It faced regulatory scrutiny for reporting as revenue the total amount its customers spent on deals, not just the money it got to keep. After federal regulators questioned the practice, Groupon submitted new documents that showed that net revenue in the first half of 2011 was about half of what it originally reported.

Though it made a profit in the second quarter of last year — its only profitable quarter as a public company — investors have been more focused on its slowing revenue growth. In 2012, its first full year as a public company, Groupon's revenue increased 45 percent to $2.33 billion. But that's much slower than the five-fold growth in 2011 and 22-fold increase in 2010, compared with the previous years.

Thursday's announcement came one day after more disappointing news on revenue. The company said revenue in the current quarter would be in the range of $560 million to $610 million, below analyst expectations of $647 million.

Groupon said Mason was not available for interviews.

The company did not disclose details about any severance package he might have received, though it will be required to do so by next week. In a regulatory filing last year, Groupon said Mason is potentially entitled to $4,344.36 in total compensation if he is fired "without cause or for good reason." The bulk of that amount is for health coverage, as Mason voluntarily reduced his base salary to $756.72 in 2011, from $180,000.

Much of Mason's wealth comes from Groupon's stock. He owns 7 percent, or about 46 million shares, according to FactSet. Based on Thursday's closing price, that's worth more than $208 million.

In a statement, Groupon's Leonsis said that the company "will continue to invest in growth, and we are confident that with our deep management team and market-leading position, the company is well positioned for the future."

Gartenberg called the way the announcement came out "refreshingly honest."

"There was no pretense that he is leaving to pursue other interests or spending more time with his family," he said.

Groupon's stock hasn't traded above $10 since last July and hit its lowest point, $2.60, in November. Until Wednesday's earnings report, the stock had been crawling back up, but the results disappointed investors who sent it tumbling once again.

After the announcement of Mason's ouster, the stock gained 19 cents to $4.72 in after-hours trading. The modest 4.2 percent gain, compared with the 24 percent drop earlier in the day, is a sign that investors will need more than the CEO's firing to start believing in Groupon again.

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