CEO
IPO: May be hazardous to CEO health
March 8, 2013: 10:02 AM ETInitial public offering side effects include first-day pop followed my painful malaise. Take with caution.
By Kevin Kelleher
FORTUNE – First Groupon fired Andrew Mason. Now Pandora says Joe Kennedy is leaving Pandora. Being a CEO of a company that made a splash in the public markets with high-flying IPOs is starting to look like a job hazard.
Pandora (P) priced its shares at $16 in June 2010. On its first day of trading, the stock shot up to $26 before plunging below its offering price the next day. After dipping as low as $8 a share last year, Pandora has rallied to $11.73 at yesterday's close. That's still 27% below its IPO price and 55% down from its record high.
Groupon's (GRPN) stock has followed a similar if more extreme trajectory. Offered at $20 a share, the stock surged to $31.14 in a matter of hours, then began a slow painful slide. The day Mason left Groupon, the company's stock traded as low as $4.24 a share, a 79% discount from its offering price and 86% off its fleeting, first-day high.
Looking at these two stocks, the first apparent lesson is one well-known to experienced investors: Beware the first-day pop. Once upon a time, buying a stock on the first day of trading could possibly let you in on a rally that could last months, if not weeks. But recently bearish investors have been impatient to cash in on quick gains or short stocks they believe have a brief shelf-life.
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But with more hindsight, something else is becoming clear: It seems to be getting harder for many companies to make money from the web. The business models that have resonated with consumers on a large scale simply aren't translating into businesses that can generate steady profit growth.
In the first wave of Internet startups, companies like Amazon (AMZN) and Yahoo (YHOO) posted early losses for years before moving into steady profitability. Newer companies like Google (GOOG) and Facebook (FB) have emerged capable of delivering profit margins of 20% or 30%.
But these are the exceptions. Many recent web IPOs have struggled with fleeting profits or regular quarterly losses. Compare the profit margins of Pandora and Groupon with that of Google in the chart below. Granted, Google is an older, more mature company, but when it went public it had net profit margin of 13% and a pretax margin of 20%.
Both Pandora and Groupon grew rapidly and gained early market share by offering discounted or ad-supported services that appealed to cost-conscious consumers in the recent recession. Both became emblematic of a new generation of startups that could entice skittish investors into new tech IPOs. Both IPOs showed that, in fact, investors still aren't hungry for companies better at growing revenue than growing profit.
Groupon's profits have been pressured by, first, high marketing costs made to fuel rapid expansion and, more recently, an aggressive move into lower-margin direct sales. Pandora's profits are hurt by the onerous fees demanded by music labels for licensing their artists under contract.
The earnings report Pandora made alongside news of the management change underscores the trend. Pandora is still growing at rates most companies would envy. Total listener hours rose 53% to top 4 billion hours last quarter. Revenue grew 54% to $125 million from the year-ago quarter. Yet the company still reported a net loss of 4 cents a share.
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Pandora's earnings and future guidance were in line with analyst expectations, although the stock rose 21% in afterhours trading Thursday to $14.16. That may reflect optimism that a new CEO could help Pandora improve its performance. Groupon's stock saw a similar pop after Mason's departure hit the wires.
But it's not clear how a new CEO is going to be a sure-fire solution for either company. Groupon's board indicated that a seasoned executive could be needed to steer the company forward. But Kennedy is just such a seasoned hand, with several years at e-Loan and Saturn Corp. before joining Pandora in 2004. If Pandora's board feels a younger face is necessary, perhaps they can arrange a CEO swap with Groupon.
The real reason weighing down the stocks of Groupon, Pandora and many other recent IPOs is a truth investors may not want to hear. The business models themselves are troubled. Using the web to build or market a business can cut costs, but it's also trained consumers to expect -- and even shop around for -- prices to be low. Or free if ad-supported. Or, ideally, free without any ads.
And so, under pressure from investors, boards and companies are blaming CEOs. When in fact it's the business models that are problematic. The web just doesn't generate profits the way it used to.
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Andrew Mason's Groupon legacy: It's okay to leave
Groupon founder Andrew Mason was fired from the CEO post, but he may well be remembered for having the right mix of grace and humor on his way out.
By Katie Benner
FORTUNE -- The man-boy founder of Groupon was fired yesterday. If you haven't read his letter to employees, do yourself a favor and click here. Mason took a lesson from the Carol Bartz school of honesty ("Yahoo f*cked me MORE
Mar 1, 2013 11:01 AM ET -
LinkedIn CEO Jeff Weiner: Treat employees like adults, and you won't have leaks
With 1 billion user "endorsements" and counting, Jeff Weiner explains the secret behind LinkedIn's red-hot streak. (Hint: It has nothing to do with the 3,500 iPads he just gave employees.)
FORTUNE -- Why doesn't LinkedIn (LNKD) suffer from the same news leaks as companies like Yahoo (YHOO)? As LinkedIn CEO Jeff Weiner put it simply at Fortune's Brainstorm Tech dinner in San Francisco last night: It's all about transparency.
Weiner knows what MORE
JP Mangalindan, Writer - Feb 14, 2013 1:43 PM ET -
4 moves Intel's next CEO must make
The tech giant faces difficulties ahead as the chip market changes. Here's what the company's next leader must do.
By Kevin Kelleher, contributor
FORTUNE -- Anyone care to run an $54 billion-a-year tech giant? Anyone have any good ideas how to get it growing again? Intel is looking for a new CEO to take the reins at the Silicon Valley icon next May, when Paul Otellini steps down from the job.
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HP and IBM: Two paths, one future
Despite bedrock similarities, the two giants have very different philosophies.
By Kevin Kelleher, contributor
FORTUNE -- On the face of it, Hewlett-Packard and IBM have a lot in common. Both are storied brands with rich legacies that shaped high-tech. Both are working with companies large and small to help manage their technology. Both are angling for a piece of the markets -- like cloud computing and big data -- that promise years MORE
Kevin Kelleher - Sep 20, 2012 6:08 AM ET -
Apple's Tim Cook tops two highest-rated CEO lists
First in both Glassdoor's Top 10 Tech CEOs and its Top 25 Highest-Rated CEOs list
Glassdoor.com, which has been soliciting salary information from anonymous contributors and publishing the results on the Web since 2008, tried something new two years ago.
Borrowing a page from the Presidential approval-rating surveys, it asked employees:
Do you approve of the way your CEO is leading the company?
Although he's only had the job since last August, Apple (AAPL) MORE
Philip Elmer-DeWitt - Mar 29, 2012 12:03 PM ET -
HP's printer problem
The printer industry is experiencing a long, slow decline — and HP is doubling down. That may be a mistake.
By Kevin Kelleher, contributor
FORTUNE – When Eastman Kodak filed for bankruptcy in January, no one was surprised. The 131-year-old company once controlled 90% of the U.S. film market in the 1970s, only to be displaced by the rise of digital cameras. It took decades for Kodak to fall.
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Mar 29, 2012 10:34 AM ET -
Google: The thrill is back
Disappointing quarter aside, it's too early to tell whether Google is fundamentally doing better or worse under Larry Page. But the company is more focused, more willing to take risks and -- for the first time in years -- more interesting.
By Kevin Kelleher, contributor
FORTUNE -- It may be unfair to grade a work in progress, but in the case of a closely watched company like Google, it's inevitable. In the MORE
Jan 25, 2012 11:29 AM ET -
Thorsten Heins: Not the right CEO for RIM
The troubled phone maker's new CEO has had a very bad introduction. Here's why he may not be right for RIM right now.
By Kevin Kelleher, contributor
FORTUNE -- If only they hadn't released that video.
The good news, the part that investors had been clamoring for, came first. Mike Lazaridis, who co-founded Research-in-Motion (RIMM) in 1984, and Jim Balsillie, who joined the company in 1992, were stepping down as co-CEOs and co-chairmen of MORE
Jan 24, 2012 10:23 AM ETPosted in: CEO, Jim Balsillie, Mike Lazaridis, Mobile, Research in Motion, RIMM, Smartphones, Thorsten Heins -
Survey: 4% less likely to buy Apple products now that Steve Jobs has resigned
But that's down from 18% three years ago, according to ChangeWave Research
The series of medical leaves that Steve Jobs took before he finally resigned last month seem to have had an inoculating effect on both investors and consumers, allaying their concerns about Apple's (AAPL) future without its co-founder and CEO.
The effect on investors was apparent three weeks ago, when Apple's shares rose in the days after Jobs' resignation.
Evidence of the MORE
Philip Elmer-DeWitt - Sep 13, 2011 3:11 PM ETPosted in: Apple, CEO, ChangeWave, iPad, iPhone, Mac, Macintosh, Mobile, PCs, Resignation, Resigns, Steve Jobs, Tablets
