Nov. 05--Groupon, which has constantly reinvented itself as part of a continuing campaign to tell investors what they wanted to hear, took a hit this week.
The truth hurt.
The 7-year-old Chicago-based business, famously tagged by Forbes in 2010 as the fastest-growing company in history, has had to acknowledge that strategies it embraced with Wall Street's tacit blessing hadn't really proved sustainable, so it's time to pivot yet again.
Groupon has always seemed to be a moving target in search of a speeding bullet. This latest shift, however, will have it slowing down, streamlining and sacrificing near-term profits to reinvest in itself and its image.
Might as well call it Chameleon.
The question is whether this will prove one turn too many for a company that once passed on a multibillion-dollar acquisition by Google, four years ago had a share price north of $26 and, as of Wednesday, was below $3 per share for the first time in three years.
Enter a new chief executive, Rich Williams, Groupon's third CEO in 33 months, freshly elevated from chief operating officer and, before that, chief marketing officer. He succeeds Eric Lefkofsky, a co-founder who moves to the chairman's post.
Among Williams' first responsibilities on Tuesday's earnings call after Groupon announced it had underperformed analysts' projections was to lay out moves that he cautioned may make for a less merry Christmas in the critical fourth quarter.
"We're here to win and we're playing to win ... even if it means some short-term pain, because playing to win isn't always going to be easy," Williams said.
This was new for Groupon. Wall Street, which either couldn't believe what it was hearing or more likely knew it to be true, sent Groupon's share price plummeting more than 25 percent.
Seems the marketing expenditures Groupon dialed back, satisfying concerns that the business might not be sustainable, are being raised to levels not seen since 2011 in the run-up to the company's lucrative IPO.
That marketing included, if you recall, investing in edgy Super Bowl Sunday TV commercials that too many saw as trivializing causes involving Tibet, the rain forest and whales. Love them or hate them, a lot more people knew of Groupon afterward.
But if that's how people remember Groupon, or they think of being carpet-bombed with emailed offers or that discount deal that expired before they could use it, the company has a big problem it's finally owning up to.
"Too much of our brand awareness is rooted in the old Groupon," Williams said. "Imagine how much value can be unlocked when we fully transition the brand to the new Groupon, the local marketplace."
But for that marketplace, well, changes are needed there too. It's like the old mall in town that needs an update and better stores with fresh inventory.
In the last couple of years, Groupon has shifted from pushing deals to consumers to a model in which it hoped to pull them in. The idea was to keep customers engaged as they began to ignore the emails touting local bargains that founding CEO Andrew Mason once contended were all the marketing the company would need.
But keeping would-be customers engaged for classic Groupon deals and supplementing that business required low margins and sometimes losses on sales. It took a toll. A lot of money passed through, but it wasn't a great business proposition for the company.
Williams wants to up the quality of the merchandise, services and other offerings so Groupon can make more per transaction. Assuming it can happen at all, it's not going to happen overnight.
Groupon also has begun scaling back operations or withdrawing from areas where it has struggled.
"We'll be more streamlined and more focused, even if it means operating in fewer countries and moving away from empty calories that boost short-term revenue or billings," Williams said. "We're willing to get smaller in order to get bigger."
Critics have long wanted greater focus and candor from Groupon, which tried to introduce its own accounting methodology in an IPO filing to make its business prospects seem all the more impressive.
It's not clear what took so long for Groupon to come to this self-evaluation and plan of action. Maybe it was Amazon announcing it was getting out of the local daily deals business, leaving more room to run for Groupon.
Maybe Lefkofsky and others who managed to take profits early realized there's no reason left not to roll the dice, even if it only proves that the new way of doing business Groupon leaders have been saying is so great -- rankling regulators in at least a couple of instances -- isn't nearly as strong as advertised.
"Without question, our road hasn't always been smooth," Williams said. "Smooth roads are rare for pioneers."
So is survival and long-term success, but it helps to recognize the pitfalls and hazards on the journey ahead.
Margin call: Parker Brothers, which reconsidered its initial rejection of the game when an independently produced version sold well at a Philadelphia department store, began marketing Monopoly 80 years ago Thursday. Current Parker Brothers owner Hasbro has said half of those who play make up their own rules. Just like with real monopolies.
philrosenthal@tribpub.com
