* Loses a quarter of its value after revenue disappointment
* CFO says company cut share of revenue to retain, lure
(Adds details of take rate reductions, European business)
By Alistair Barr
SAN FRANCISCO, Feb 27 Groupon Inc lost
a quarter of its market value on Wednesday after the company
revealed it began to take a smaller cut of revenue on daily
deals during the holidays, sacrificing revenue and profits to
attract and keep merchants.
The cut in its "take rate", which some analysts had said was
needed to revive flagging interest among merchants in its
Internet offers, was a blow to fourth-quarter results. And a
sharper-than-expected post-holiday slowdown in its new
e-commerce business contributed to a disappointing first-quarter
The stream of bad numbers, which included a surprise loss in
the fourth quarter, drove Groupon's stock down 26 percent to
$4.43 in after hours trade. Overall, the company has shed more
than three-quarters of its value since debuting at $20 in
November of 2011.
"This raises questions about how these guys are going to be
able to scale the business," said Tom White, an analyst at
Macquarie. "The forecast is underwhelming."
Groupon is among a group of consumer-focused Internet
startups that went public to much fanfare in 2011 - before
losing massive chunks of market value as investors realized they
had over-rated their prospects.
Within a year, Groupon had run into problems dealing with
European merchants and sustaining interest among users as deals
fever receded. In 2012, analysts speculated that Chief Executive
Andrew Mason, known for a quirky sense of humor, may have fallen
out of favor with the board.
A company spokesman said Mason remained in charge and the
CEO addressed analysts on Wednesday's post-results call.
Groupon reported fourth-quarter revenue rose 30 percent to
$638.3 million from $492.2 million in the year-ago period. But
it slid into the red with a 1 cent per share loss excluding
items, versus expectations for a slim profit of 3 cents a share.
It forecast first-quarter revenue of $560 million to $610
million, sharply below the $650 million average estimate of
analysts polled by Thomson Reuters I/B/E/S.
Chief Financial Officer Jason Child told Reuters that
Groupon began sharing more money from its deals with merchants
early in the fourth quarter, to persuade them to come onboard
and run an offer for the first time, or work on another.
This was done selectively in the United States and in
Europe, he added.
Historically, Groupon has kept about 40 percent of the money
generated by daily deals. That declined to about 35 percent in
the fourth quarter. Groupon then "fine tuned" take rates later
in the quarter and Child said the company expects profitability
to improve as a result.
"We are focused on driving growth," he said in an interview.
"We will make the investments we feel we need to optimize for
growth and merchant profitability."
THE GOODS ON EUROPE
Merchants have complained that Groupon takes too large a cut
of online offers.
Groupon executives forecast long-term take rates of 30
percent to 40 percent for the daily deals business, during a
conference call with analysts. One of the reasons Groupon
reduced take rates was to create more daily deals for a new
business called Local Marketplace, which launched in November.
Groupon has mostly focused on sending daily emails to
customers offering vouchers for activities in their area. Local
Marketplace relies instead on people searching for something to
do or buy nearby, such as an oil change or a massage. By the end
of the third quarter, before the launch, Groupon had amassed an
online store of more than 27,000 deals for the new marketplace.
Analysts have said the move has potential because Groupon's
deals may be more likely to show up in Google searches. By the
end of 2012, Groupon claimed almost 37,000 active deals running
in North America, and many were longer-term offers for Local
For now, Groupon Goods, the company's discounted product
sales business, generated a lot of the fourth-quarter revenue
growth, though it's seasonally volatile and generates lower
margins than daily deals.
Groupon's limp outlook revived fears its business model may
be in jeopardy. Chief among their concerns have been
intensifying competition in e-commerce, and a struggling
European division walloped by the recession there.
Executives warned a turnaround effort there would take time,
and signaled that cost cuts are coming for the company's
Groupon is trying to fix it by reducing the size of
discounts on deals there and testing faster payments to
higher-quality merchants. Technology used to automate its U.S.
operations and sales efforts is being rolled out in Europe now.
Kal Raman, chief operating officer, said more than the twice
the number of people are needed to handle and process an
International division deal, than in the United States.
A Groupon spokesman said there are no "definite" plans for
International job cuts, but there were staff reductions in the
United States when the company automated.
"That is an enormous opportunity to organize Groupon's
operations to be both more efficient," Raman told analysts
during the conference call.
(Reporting by Alistair Barr; Editing by David Gregorio, Richard
Chang and Tim Dobbyn)