NEW YORK (AP) — Shares of Groupon Inc. took a hit on Monday after an analyst lowered his target price on the stock to reflect higher marketing expenses over the next few quarters. In addition, Groupon's co-founder and chairman, Eric Lefkofsky, said he is scaling back his involvement to focus on Lightbank, his venture capital firm.
THE SPARK: Susquehanna analyst Herman Leung, who has a "Neutral" rating on the discount goods and services provider, cut his target price to $12 from $15. He said his previous target did not fully factor in an expected increase in marketing expenses over the next few quarters. He also adjusted his numbers to reflect Groupon Goods transactions. Groupon Goods deals, which launched last fall, are for things like electronics, household goods or jewelry — rather than meals, gym memberships or travel getaways that the company is known for.
With these deals, Groupon, rather than an outside business, serves as the merchant. This means "a $20 book sold by Groupon Goods is recognized as $20 in billings and $20 in revenue," Leung wrote. This can inflate Groupon's "take rate," according to the analyst. That's the money it keeps from each Groupon it sells.
ANALYSIS: "We believe our model was not fully factoring in a rise in marketing expenses over the next few quarters, especially as its search marketing program continues to roll out," the analyst wrote in a note to investors. He added that he expects spending on transactional marketing, such as through Google's search engine, "to rise as the company is bulking up recent hires in search engine marketing."
CO-FOUNDER STEPS BACK: Lefkofsky said in his blog Monday that his role has always been "complicated" at Groupon, since he was a co-founder as well as its first investor.
"Andrew (Mason) has been the founder and CEO since Day One, which has permitted me to act more like a super-active investor and director than a member of the management team," he wrote. "So unlike our other companies, there was no CEO to recruit, so I could eventually move on as Andrew was always in that role."
He added that he looks forward "to continuing to work with Andrew in my ongoing role as Chairman of the Board, but in the meantime, I've immersed myself in Lightbank and am focused on growing the company."
SHARE ACTION: Shares of Groupon Inc. fell $1.12, or 10.5 percent, to close at $9.51. The stock has traded between $8.80 and $31.14 since its initial public offering in November.
