Groupon Shares Climb After CEO Andrew Mason Fired

Story first appeared on CNBC -

Groupon CEO Andrew Mason was handed a pink slip Thursday, fired after the company reported disappointing fourth-quarter results along with a dim outlook.

"After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding – I was fired today," Mason said in an email to employees announcing his departure.

"If you're wondering why… you haven't been paying attention," he added. (Read the full text of the email below.) Groupon shares shot up more than 10 percent following the news.

The stock has fallen more than 75 percent since its November 2011 IPO. In regular trading Thursday, the stock fell 25 percent after the disappointing fourth-quarter results came out late Wednesday.

The results revealed that the company has had to slash its fees from merchants to grow its business and that its new Groupon Goods business would decline in the first quarter. Mason was so confident on the earnings call, he drew criticism of being entirely out of touch. Twenty-four hours later the guillotine fell.

Groupon has not yet announced his successor but said Executive Chairman Eric Lefkofksy and Vice Chairman Ted Leonsis would serve as co-CEOs until one is found.

"This company outgrew Andrew, his vision notwithstanding. The company has different challenges now. It's in a different stage of its life and requires a different team," said Stern Agee Analyst Arvind Bhatia, who has a rare "buy" rating on the stock.

"For a company that's doing $5 billion in billings, they're not generating that much profit and I think there's an opportunity for somebody to come in and improve their margins over time," Bhatia said.

Here is the full text of Mason's email to Groupon employees:

People of Groupon,

After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding – I was fired today. If you're wondering why… you haven't been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that's hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I'm getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we've shared over the last few months, and I've never seen you working together more effectively as a global company – it's time to give Groupon a relief valve from the public noise.

For those who are concerned about me, please don't be – I love Groupon, and I'm terribly proud of what we've created. I'm OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I'll now take some time to decompress (FYI I'm looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I'll figure out how to channel this experience into something productive.

If there's one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what's best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness – don't waste the opportunity!

I will miss you terribly.

Love,

Andrew

Losses Posted for Facebook

Story first reported from USA Today

Ending a tumultuous day for social media companies, Facebook posted a loss Thursday in its first test as a public company.

Investors fled the social-networking giant in after-hours trading following a quarterly loss of $157 million, which included one-time charges related to the accounting of stock awards disclosed amid the botched initial public offering on May 18.

The social-networking giant, which went public in May with an eye-popping high valuation, reported on an adjusted basis a profit of $295 million, or 12 cents a share, on revenue of $1.18 billion for its second fiscal quarter. That met the consensus estimate for the quarter.

The company's stock plunged 11% in after-hours trading to $23.77 after losing nearly as much during the day's trading session. And the stocks of other social media companies slumped further, among them Zynga, Groupon and LinkedIn . The stocks had fallen during regular trading, even as the broad market rallied. Zynga had released disappointing earnings Tuesday after the close of regular trading, giving investors pause.

Meanwhile, a problem at Twitter's data centers took the micro-blogging site offline for several hours, affecting millions of its users. Google Chat also crashed.

The stakes could not be higher for social-networking giant after its much-anticipated IPO fizzled amid questions about its online and mobile advertising business. Its initial valuation of $100 billion is now $60 billion.

There was some good news. The social-networking giant's revenue of $1.18 billion for its second fiscal quarter compared to consensus estimates of $1.15 billion.

It was the first quarterly report for Facebook as a public company. It's unusual for a company to miss estimates on its first quarter as a public company, says Jay Ritter, professor of finance at the University of Florida. When companies go public, they typically have a solid outlook at least for the first few months.

Seeing Facebook's earnings coming in roughly in line with expectations was a disappointment for investors who have been hoping for more, says Jordan Rohan of Stifel Nicolaus. "Investors still hung to the hope that Facebook would rise to the occasion," he says.

Investors response to Facebook's report shows just how jaded Internet investors have become, he says. "It takes a particularly special performance for a stock to go up on its earnings," he says. "That's the rhythm of this quarter earnings period."

Facebook had warned investors that the quarter wasn't going to be a stellar one, by updating the risk section of its prospectus, Rohan says. "A company wouldn't do that unless the results were going to be uninspiring," he says.

Rohan continues to rate the stock a "hold." "This quarter's fundamentals don't seem to change the story of the outlook," he says.

"They have to show they can justify" even that lower valuation, says Lucy Jacobs, chief operating officer of Spruce Media, a technology platform for social-media advertising. She said Facebook has made several changes to goose ad revenue.

Like nearly every business in social media and beyond, Facebook is betting a large portion of its future on mobile ads. Yet few companies, including Facebook, have been able to capitalize on the promise. The popularity of mobile devices comes, in part, from their lack of ads.

CEO Mark Zuckerberg said mobile is a huge opportunity on a conference call with analysts, but he downplayed a rumored mobile phone from Facebook, adding that it "wouldn't make much sense." There had been speculation prior to the call that Zuckerberg might skip the conference call.

The market for the ads that dot smartphone and tablet screens is expected to soar to $10.8 billion in U.S. sales by 2016, from an estimated $2.6 billion this year, says research firm eMarketer. That's a tiny slice of the $169.5 billion market for media ad spending in the U.S.

Google has the early lead in the U.S. in monetizing mobile, with 51% of the market, largely due to its success with mobile search ads, says Noah Elkin, an eMarketer analyst. Phone numbers embedded in mobile ads on Google's click-to-call feature, for example, generate about 15 million calls per month.

Facebook barely registers yet, though the company has the potential to rake in $2.54 billion from mobile advertising, according to researcher Chitika. Facebook Sponsored Stories — an ad form that appears on a member's Facebook page and generally consists of a friend's name, profile picture and an advertiser the person "likes" — now appear in a user's Facebook mobile news feed.

 Debra Williamson, an analyst at eMarketer, says mobile is where it's at right now.

Until early this year, Facebook had no real mobile strategy, she says.
The company's challenges don't end there.

In the U.S., where Facebook makes most of its advertising revenue, the social network is not drawing new users. In May, 158.01 million unique visitors logged on to the network, compared with 158.69 million in April, according to market researcher comScore. Facebook says it has more than 955 million members worldwide.

Underwriters of Facebook's IPO lowered guidance in May, suggesting the company would earn about $4.8 billion for 2012 — a billion-dollar drop in confidence that fed market uncertainty about the effectiveness of Facebook's advertising machine.

Social-gaming leader Zynga's woeful results on Wednesday — it lost $22.8 million in its most recent quarter — underscored Facebook anxiety, since Facebook depends on Zynga for about 12% of revenue.

Zynga CEO Mark Pincus blamed some of its problems on changes Facebook made to its platform.

For more national and worldwide Business News, visit the Peak News Room blog.

For more local and state of Michigan Business News, visit the Michigan Business News  blog.

For more Health News, visit the Healthcare and Medical News blog.

For more Electronics News, visit the Electronics America blog.

For more Real Estate News, visit the Commercial and Residential Real Estate blog.

For more Law News, visit the Nation of Law blog.

For more Advertising News, visit the Advertising, Marketing and Media blog.

For more Environmental News, visit the Environmental Responsibility News blog.

For information on website optimization or for the latest SEO News, visit the SEO Done Right blog.

JOBS Act Helps Small Businesses

Story first appeared in The New York Times.

The JOBS Act passed by Congress last week and being signed by the president on Thursday helps smaller public companies avoid for a few years the internal controls reporting and audit requirements put in place in 2002 in the wake of prominent accounting scandals.

But just a few days after the bill was passed, Groupon disclosed that it had to restate its results from the fourth quarter of 2011 and that its outside auditor had found weaknesses in its internal controls.

There are always trade-offs when it comes to enforcing rules for proper financial reporting. The question is whether this exemption is a benefit to investors who purchase shares in these companies, whether they are well-known brands like Groupon or promising start-ups just getting their bearings.  Startup companies should consider employing a New York Business Entity Formation Lawyer to confirm that they are following proper legal protocol.

Section 404 of the Sarbanes-Oxley Act was adopted in response to the accounting scandals that enveloped companies like Enron, WorldCom, and Adelphia Communications, where significant accounting frauds went undetected by outside auditors, sometimes for years.

To prevent a repeat of the scandals that cost investors billions, companies are now required in annual reports to have chief executives and chief financial officers attest to the effectiveness of the internal control structure and procedures of the issuer for financial reporting. The outside auditors also have to test the internal controls and give an opinion on their effectiveness.  Austin Business Lawyers are interested in the outcome of such tests.

The initial costs of developing the required internal controls can run as high as $5 million to $10 million for a small company once it goes public because private firms do not have to have the same accounting and compliance structures in place as larger corporations. In addition to the expense of putting in place the program for the first time, the annual review by a company’s accountants adds to the costs of the audit.

There was no more reviled provision in the Sarbanes-Oxley Act than Section 404 because of the significant costs it imposed on corporations of every size, especially smaller companies that do not have a large accounting and compliance staff already in place. The law takes a one size fits all approach to internal controls, so the burden on small firms can be much more significant.

That’s where the JOBS Act (an acronym for Jumpstart Our Business Startups) steps in to help some companies avoid those costs, at least temporarily. The law exempts an emerging growth company from the requirements with Section 404. The statute defines such a firm as one with less than $1 billion in annual gross revenue or a $700 million market capitalization, and the exemption can last for up to five years if the company does not grow too large within that period.

The new law is a boon to small companies because it will lower costs by allowing them to avoid the attestation and outside auditor review requirements for internal controls. All publicly traded companies have to make accurate financial reports, but now an emerging growth company can limit its compliance and auditing costs for up to five years.  Keeping and providing accurate financial reports are an absolute must, say Washington DC Corporate Lawyers.

Compliance programs do not generate revenue for companies, and they can lead to significant costs as a company grows and has to spend increasing amounts on internal controls. The act may allow smaller companies to skimp on this part of the business when there is no requirement to comply with Section 404.

Groupon is an example of the almost inevitable problems that can arise when a company develops a popular new market. Emerging growth companies in the technology and social media fields are the type of firms that can quickly outgrow the internal controls needed to comply with the accounting rules.

Though it does not technically qualify as an emerging growth company because its rapid growth has taken it well over the $1 billion revenue limit, in many ways, Groupon is the epitome of an early stage company. Groupon is less than four years old and already has moved from annual revenue of $14.5 million in 2009 to over $1.6 billion in 2011.

(Because it just had its I.P.O., Groupon is not yet covered by Section 404, but it will have to comply with the requirements when it files its next annual report in March 2013.)
Groupon stated that it had begun taking steps and plans to take additional measures to remediate the underlying causes of the material weakness, primarily through the continued development and implementation of formal policies, improved processes and documented procedures, as well as the continued hiring of additional finance personnel. There are no assurances that it will be successful, or that other accounting issues will come to the surface, according to Washington DC Business Lawyers.

Even before its initial public offering last year, Groupon had problems with how it presented its financial results. In one filing, it used a metric called adjusted consolidated segment operating income that gave a highly favorable view of its revenue, even though it was not sanctioned as an appropriate accounting method. Groupon later dropped that approach in favor of more traditional measures that ended up showing a much lower revenue figure. The Deal Professor called the company’s approach to its accounting “Grouponomics.”

Another provision of the act exempts emerging growth companies from putting in place new accounting rules, so there is also the potential for disparate financial reporting between newer companies and more established ones. That could present problems for investors trying to evaluate a company’s financial performance as it moves beyond the early stage and will be subject to all the applicable accounting and internal controls requirements.

The act does not encourage fraud at small companies, and emerging growth companies that hope to survive more than five years will have to plan on meeting the stringent requirements of Section 404. From one point of view, the law gives newer companies a chance to grow the internal controls environment they will have to implement at some point in time.

But they are also the firms that can face the greatest risk of internal controls issues. The new law means investors in start-ups will have to be especially vigilant because the protection afforded by Section 404 will be missing.

For more organic SEO related news, visit the SEO Done Right blog.
For more national and worldwide business news, visit the Peak News Room blog.
For more law related news, visit the Nation of Law blog.