Since bottoming out last November, Groupon shares have more than quadrupled. The company's stock closed yesterday near its 52-week high. Its market cap is back above $8 billion, still a far cry from its IPO days, but once again worth more than Nokia. After being written off as a dying business (by me, among others), Groupon is staging one of the year's more unlikely comebacks.
Though Groupon shares began to rise again before ex-CEO and co-founder Andrew Mason was fired at the end of February, the real rebound didn't get under way until after he was gone. Under Mason, Groupon shed nearly 80 percent of its value during the first nine months after its 20122 IPO—at the time, the biggest internet IPO since Google. As Mason himself pointed out in his much-shared note following his departure.
"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," he said. "As CEO, I am accountable."
So what changed?
After Mason was gone, control of the company effectively went to co-founder and executive chairman Eric Lefkofsky, who was officially named CEO last month after serving as interim co-CEO. While Mason was in charge, Lefkofsky was perhaps best known for pocketing $398 million of Groupon's nearly $1 billion round of pre-IPO financing. To some critics, that decision symbolized what they saw as the company's focus on short-term gain over long-term strategy -- an image that seemed deserved as Groupon filed quarter after quarter of dismal earnings reports and flailed its way into new categories such as mobile payments.
Yet it's mobile that also appears to hold the key to Groupon's comeback.
Traditionally, Groupon has relied on email to market daily deals -- an approach known as "push," since the company was pushing the pitches to potential customers. But in its second-quarter earnings announcement, which sent Groupon shares soaring in August, the company said that "pull" was supplanting "push" as email accounted for less than 40 percent of all North American transactions. Instead of email, Groupon says its "pulling" deal seekers into its marketplace, where they actively search for deals—an approach ideally suited to mobile apps.
In a meeting with Deutsche Bank analysts, Groupon said mobile was on track to account for half of all Groupon transactions. The Groupon app was downloaded 7.5 million times in the second quarter.
"We hosted meetings with Groupon management on Monday and the tone was largely upbeat," wrote Deutsche Bank analyst Ross Sandler in a note on the meeting with Groupon management. Sandler has been among the most bullish backers of Groupon post-Mason. In June, Groupon shares rose after Sandler upgraded the stock from a "hold" to a "buy" and raised his estimated target price from $6 to $10. Yesterday, Groupon closed at $11.76, and Sandler sees them rising to $17.
"We still see more runway in front of Groupon," he wrote.
Still, a little stock market love doesn't necessarily mean a return to real success. (Groupon still isn't profitable.) Yahoo's share price has also soared under new leadership, but that support from the market signals hope for the future more than accomplishments in the present. For Yahoo, the question remains: What does this company really do?
For Groupon, the lingering doubt is whether daily deals are really a sustainable business at all. Groupon has long since tried to reframe its image away from the half-price cupcake and spa treatment vouchers with which its name has become synonymous. The company says its mission is to be "the world's commerce operating system," which fits with its forays into payments and more traditional e-commerce sales of physical goods.
As consumers increasingly turn to their mobile devices to shop, perhaps Groupon's "pull" strategy will be enough to maintain its return to respectability. But it's also possible that the whole premise of Groupon is still iffy, and this rally just another blip en route to the demise of another dotcom fad.
Update (September 13, 2013, 1:20 p.m. PDT): Forrester Research analyst Sucharita Mulpuru, a longtime Groupon critic, just got back to us. Here's an excerpt of her take on the recovery of the company's stock:
