Groupon shows growth, wins investor love

The shares jump more than 25% after the company reports new revenue growth and announces a stock buyback. Eric Lefkofsky, a company founder, is now CEO.

By Charley Blaine Aug 8, 2013 2:40PM
Groupon co-founder Eric Lefkofsky © Jörg Carstensen/dpa/CorbisBack in November, deals site Groupon (GRPN) was thought to have one foot in the grave and the other slipping in as well.

The shares were trading as low as $2.60. The business model was a mess. Then-CEO Andrew Mason was under fire because the company was missing earnings estimates; he'd be fired in February.

Fast-forward to Thursday. The stock is up $2.21 to $10.93; it has been as high as $11.22. It's among the top six-best performing stocks in the Nasdaq Composite Index ($COMPX).

If you had taken a flyer on Groupon at $2.63, its closing low on Nov. 13, you'd be up 318% before taxes and fees.

The Nasdaq was up 19 points to 3,673 after two days of losses. The index also was helped by strong earnings from Tesla Motors (TSLA). Tesla's shares were up $23.23 to $157.46.

The Dow Jones industrials ($INDU) had recovered from a loss of as much as 52 points to a 47-point gain to 15,518 at 2 p.m. The Standard & Poor's 500 Index ($INX) was up 8 points to 1,699. The gains for the Dow and S&P 500 were their first after three straight losses.

What's happened for Groupon since November, besides Mason's ouster, is that the company is showing revenue growth again, although profitability is a question.

Groupon is slowly reorganizing its business model, moving away from emailed daily coupons, which overwhelmed subscribers, The Wall Street Journal noted. Now the idea is for Groupon to become a destination that connects people with deals and services.

Second-quarter revenue was up 7% to $608.7 million. In North America, mobile users now represent 50% of traffic. The company did report a $7.5 million loss, or 1 cent a share, but it also said it generated free cash flow of $29.3 million and has $1.2 billion in cash and equivalents.

North American growth of 45% was offset by a 24% decline in Europe, the Middle East and Africa and a 26% decline in the rest of the world. Groupon sees third-quarter revenue at $585 million to $635 million; analysts have been expecting $622 million, a 9.1% gain.

The company also announced a $300 million share-buyback plan. The shares will be bought over the next two years.

And Groupon said Eric Lefkofsky (pictured above) has been named chief executive officer. He had been co-CEO with Ted Leonsis, who becomes chairman.

Lefkofsky helped found the company in 2008 and, with a 17% stake, is its largest shareholder. The value of his stake jumped from about $957 million on Wednesday to about $1.2 billion on Thursday. Lefkofsky's holding had been worth as little as $285 million in November.

The moves were enough to get investors interested. Two brokerages upgraded the stock. UBS bumped its rating to "neutral" from "sell," and Raymond James upped its opinion to "market perform" from "underperform."

One hopes Lefkofsky has learned some lessons from Groupon. Before the company's IPO, he told Bloomberg News that the company would be "wildly profitable." The SEC wasn't happy. Then, it was disclosed the company had raised $950 million in a private offering before the IPO and paid out $810 million to investors and employees. Lefkofsky and his wife took out $319 million of the total, The New York Times said.

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