Groupon Fires CEO Andrew Mason: The Rise and Fall of Tech’s Enfant Terrible

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Stephen Yang / Bloomberg via Getty Images

Andrew Mason, then chief executive officer of Groupon, speaks at the Nasdaq MarketSite in New York on Nov. 4, 2011

It was only a matter of time.

Groupon fired its charismatic CEO Andrew Mason on Thursday after a tumultuous tenure pockmarked by accounting gaffes, sophomoric stunts and a whopping 77% decline in the company’s share price. Mason’s firing, which was expected, came one day after Groupon delivered a net loss of $81 million for the previous quarter, sending its stock price down a vertigo-inducing 24% in one day.

“I was fired today,” Mason wrote in a letter to employees. “If you’re wondering why … you haven’t been paying attention.” He cited the company’s controversial accounting techniques, its failure to meet its own financial projections, and its deep and dramatic stock decline. “The events of the last year and a half speak for themselves,” Mason wrote. “As CEO, I am accountable.”

Mason, 32, who is worth more than $200 million, wrote that he is “O.K. with having failed at this part of the journey,” and compared Groupon to the 1990s-era video game Battletoads, writing, “It would be like I made it all the way to the Terra Tubes without dying on my first ever play through.” (See this explanation of that reference.) Mason then went on to say that he is “looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion.”

(MORE: The Social-Media-Tech IPO Boom: An Insider’s Game?)

Groupon’s board statement was more conservative. “On behalf of the entire Groupon board, I want to thank Andrew for his leadership, his creativity and his deep loyalty to Groupon,” said Groupon executive chairman Eric Lefkofsky, who has been appointed to the newly created office of the chief executive, along with vice chairman and veteran tech entrepreneur Ted Leonsis. Groupon’s board had weighed showing Mason the door since late last year.

Mason’s firing pushed Groupon shares 4% higher, but it by no means solves the company’s problems, even if it removes a source of investor concern. “Mason’s departure is largely symbolic,” wrote Rakesh Agrawal, a tech consultant and prominent Groupon critic who is short the company’s stock. “[The] company has huge structural challenges that his ouster doesn’t solve.”

Lefkofsky and Leonsis acknowledged those challenges in a memo to staff. “We all know our operational and financial performance has eroded the confidence of many of our supporters, both inside and outside of the company,” they wrote. “Now our task at hand is to win back their support.”

Once described as the fastest-growing tech start-up in history, Groupon’s stunning rise and dramatic fall have become symbolic of the most recent round of hype-fueled tech IPOs. Launched in 2008, Groupon’s meteoric ascent was fueled by a novel, but deceptively simple, business model: instead of offering discount coupons to individual consumers, Groupon’s system required a certain number of users to sign up for the discount to be activated.

(MORE: Groupon Faces SEC Probe, Investor Lawsuit as Stock Hits New Low)

Retailers were initially eager to participate because the system promised an influx of new customers. It seemed like a win-win for both consumers and retailers — especially during the Great Recession, as consumers hunted for bargains and retailers were desperate for new business. But the company has been buffeted by complaints from both consumers and retailers, as well as increasing competition and an improving economy.

Groupon’s missteps began early, and continued often. In the summer of 2011, as Groupon was preparing its IPO, the company raised eyebrows with a funky financial metric it called Adjusted Consolidated Segment Operating Income (ACSOI). There was just one problem: because that figure excluded marketing costs, which make up the bulk of the company’s expenses, ACSOI made Groupon’s financial results appear better than they actually were. After the Securities and Exchange Commission (SEC) raised questions about the metric — which the Wall Street Journal called “financial voodoo” — Groupon downplayed ACSOI in its IPO documents.

Mason also annoyed the SEC when he authored a lengthy, profanity-laden memo that was promptly leaked to the press in the middle of the company’s pre-IPO quiet period. In the memo, Mason touted Groupon’s prospects and trashed the financial press for critical coverage of the company. The SEC ultimately forced Groupon to include the document in its IPO filing. And just weeks before the IPO, Groupon radically changed how it accounted for revenue after further pressure from the SEC — causing it to slash its 2010 revenue by half.

Then, last April, Groupon restated earnings to reflect a larger quarterly loss after its auditor discovered “material weakness in its internal controls” — financial speak for lax accounting practices. That episode prompted a preliminary SEC probe, as well as a shareholder lawsuit accusing top Groupon executives of a “fraudulent scheme” that “deceived the investing public.” At the time, prominent venture capitalist and tech pundit Paul Kedrosky described the company as “a complete fiasco.”

(MORE: Why Groupon’s Fuzzy Math Should Worry Investors)

But questionable accounting practices were just the beginning. There was also the matter of Mason’s occasionally bizarre behavior. Take the infamous 2011 “death stare” episode. Or the key all-hands meeting last April when Mason outlined the company’s corporate strategy, during an address observed via webcast by a reporter. At one point, Mason’s voice broke. “Sorry, too much beer,” he said, as reported by the Journal. Mason then proceeded to tell his employees that Groupon needed to grow up.

There were other stunts as well. A 2011 Vanity Fair piece — for which Mason posed with a cat on his head — relates how Mason had purchased a spotted pony named Spice that he planned to give New York City Mayor Michael Bloomberg, who was visiting Chicago-based Groupon. Disaster was averted only moments before Bloomberg arrived, after a Groupon employee discovered via Google that the mayor’s daughter Georgina had recently suffered a concussion and a fractured spine during a horse-riding accident.

Needless to say, Spice did not return to New York City with Mayor Bloomberg. (More Mason antics can be found here and here.) Sophomoric stunts aside, the most outrageous Groupon episode occurred well before the company had even gone public. In January 2011, Groupon raised $950 million in its last pre-IPO fundraising round. Yet by the end of March 2011, the company only had $209 million in cash, as All Things D’s Peter Kafka reported. So where did all the money go?

Turns out that even as Groupon was losing money, the company paid out over $800 million to company insiders, including $300 million to Groupon chairman Lefkofsky. Groupon, which turned down a $6 billion offer from Google, would later go public at a valuation of nearly $13 billion. It is now worth less than $3 billion, a 77% decline.

9 comments
elcidharth
elcidharth

I am not sure why nobody is talking about Frank Sennett, the author of a forthcoming book on the company.

  • Google offered a $800 million breakup fee. That wasn't enough, given the uncertainty over whether antitrust regulators would allow the deal to go through.
  • Some investors, chiefly Accel's Kevin Efrusy, believed Groupon had room to grow.
  • A top researcher working for Groupon, Nitin Sharma—who had just joined the company from Google months before—persuaded the board that Groupon could increase its revenues tenfold by making better use of data.
  •  

    Those details come from an excerpt published by the Wall Street Journal from Groupon's Biggest Deal Ever, which comes out June 5.

    By December, the deal was off. And Groupon set a course for an IPO. Within less than a year it was public. Of course, that hasn't gone smoothly. But even after seeing its stock price fall by more than half from the IPO price, Groupon is still worth more than what Google offered. Barely

    Source:  Why Groupon Really Turned Down Google's $6 Billion Offer By Oweb Thomas June 2, 2012

    http://www.businessinsider.com/groupon-google-deal-turn-down-2012-6

    Hoopla has entered major (Financial/Business) media. TIME to STOP.

    ...and I am Sid Harth@elcidharth.com


padgettsemi
padgettsemi

I feel like people were rooting for him to fail.

antonmarq
antonmarq

They can fire everyone, Groupon is a silly idea that's really not needed. They have managed to scammed the public however, a public drunk on buying junk. Most people can get better deals with eBay, but they have to work a bit to get the account going. 

pisab
pisab

They have a unique concept, but their execution is terrible. I purchased a Groupon, but was unable to print my Groupon coupon. They had no Service to help with printing problems, ended up getting refund.

g

SmallBizVet
SmallBizVet

$200 million is not a bad take for a failed business!  I'm sure Mr. Mason is laughing all the way to the bank!  While many small businesses were damaged by running a Groupon, the real story is the collateral damage that the daily deal phenomena created for those of us who knew better than to succumb to this fad.  Groupon drove down prices for all of us and dramatically changed consumer behavior to chase the deal or in many cases, pressure and threaten business owners to offer a steep discount, "or else"!  The daily deal business era has prevented us from raising our prices (even though our fixed costs and inventory costs have increased) because we had to try to compete with all of our desperate competitors who were discounting similar services and businesses at half off!  The result for us is tighter margins which prevented us from hiring, buying more equipment, etc.  While we are only 1 small business, you can easily multiply this scenario by thousands (and add in all the businesses killed off by running a Groupon) and you can see how damaging the daily deal business has been to the small businesses marketplace.  The writer of this article was correct:  Groupon focused on the consumer, instead of their "real" customer, the merchant.  Perhaps Mr. Stoppleman at Yelp would be interested in Mr. Mason's creditials...running an unprofitable enterprise that hurts small businesses and focuses on the consumer!

turbovega
turbovega like.author.displayName 1 Like

Too bad there is not much room left to short GRPN, or is there?  The comment made by bk9001 takes me back to remembering the dot com startups of the late '90s (the hype, the creative accounting .. and the eventual bust). 

bk9001
bk9001 like.author.displayName like.author.displayName 2 Like

It is yet  another familiar story from San Francisco/ bay area.  It is a game called  "Make Money Fast and Real Fast".  

Here it is- how it is played.:


Hype a loss making or no revenue "social media" type company.  Hire some booster club members in media business. Suck in some ordinary investors via ipo. Distribute wealth to insiders or let insiders cash in quickly.  Now release all the hidden bad news. Make even more money bu shorting stock.  A few more quarters. Declare bankruptcy or declare  fire sale or close the business.

Winners: Insiders  including Investors, underwriters, founders, executive etc.

Losers: Suckers that got sucked in by media frenzy in the IPOs.


 



MikeReid1
MikeReid1

@bk9001 and then roll on to the next one using your ceo star power