Groupon Inc (NASDAQ:GRPN) CEO and founder Andrew Mason is out of a job. In a message to Groupon employees, Mason spilled the news explaining he’d been fired and that if they didn’t know why they hadn’t been paying attention. This comes on the heels of a disastrous quarter and a stock price at nearly a quarter of its initial list price. During the earnings release a Groupon spokesman took questions that led to an awkward moment foreshadowing the firing. When asked whether the company’s poor performance would affect Mason’s job, the spokesman responded with a terse statement: “He’s here today.” The day after was a different story, but does it really change much for the company?
Competition notwithstanding, it’s unclear whether the business model can consistently generate a profit. The company’s first IPO filing indicated $60.6 million in operating income for 2010 but relied on a non-GAAP metric many deemed misleading. Upon restatement the company reported an operating loss of $420 million for the year in question. The company has struggled to turn a profit, though it appears to be a common trend in the deals space. In January, an Amazon filing revealed LivingSocial had a net loss of $650 million for 2012, after losing $499 million the year before. Perhaps even more discouraging is the fact that LivingSocial’s loss came after doubling its revenue from the previous year. Amazon now values its portion of the company at $52 million as of year-end, down from $94 million three months prior. Even Google has struggled to make Offers work, gaining little traction despite being part of one of the web’s most visible brands. At this point Offers has taken a backseat to any number of Google initiatives, but even that highlights the weakness of the deals market.
The daily deal space demanded attention initially, but doesn’t seem to be able to support one, let alone the nearly 500 companies that operate in the space. Groupon Inc (NASDAQ:GRPN) has begun exploring e-commerce with its Groupon Goods, but even that may not save the company. In fact, moving from deals to online retail may be jumping out of the frying pan and into the fire. Even though Groupon Inc (NASDAQ:GRPN) currently faces numerous competitors, it is the dominant player in the deals space. A move to retail, even as a marketplace, puts it in contention with well-entrenched competition.
Pursuing retail puts it in direct contention with companies like Amazon and eBay Inc (NASDAQ:EBAY) , both of which have the assets and clout to smother Groupon. While eBay’s PayPal unit tends to dominate headlines, its marketplace and mobile businesses have been driving earnings and helping beat estimates. Mobile alone more than doubled to $13 billion in revenue, just behind the $14 billion generated by PayPal. The company also recently revamped its marketplace and has begun testing same day service in major cities, most recently rolling out a test in San José. Amazon has also started to explore same day delivery and continues to demonstrate its willingness to outspend the competition.
Currently Groupon’s core business is about delivering deals by way of email or app. As the company moves toward physical goods it adds shipping and distribution to the mix, placing additional pressure on already strained resources. This becomes particularly problematic when going head to head in the retail space, where margins are already thin. It’s hard to imagine the company squeezing profit out of an already saturated market, particularly since it is struggling in a market it currently leads. This is compounded by the fact that retail’s major players, as pointed out above, aren’t complacent and demonstrate a willingness to innovate.
Ultimately it may not matter who is at the helm, Groupon may simply be a sinking ship. Best of luck to whoever takes over–looks like they’ll need it.
The article Groupon CEO Gone, Will it Matter? originally appeared on Fool.com.
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