Groupon Restates Revenue, Revenue Fell In Half, COO Exits | Hacker News Reader

Groupon Restates Revenue, Revenue Fell In Half, COO Exits

online.wsj.com

236 pointschailatte127 comments

All this finger shaking is misplaced.

Groupon's accounting was legitimate as a management accounting approach, and any savvy investor should have realized this.

Do you think that Google's acquisition offer was naive to the basic accounting approach used by the firm? Of course it wasn't.

The knee-jerk criticisms of Groupon's accounting are coming from the same naive viewpoint as those who demanded mark-to-market accounting practices (which helped trigger the housing crash).

The use of accounting to measure business valuation is more an art than a science, and no savvy person should be fooled either by a firm's decision not to mark the price of an asset to market or to consider ramp-up costs temporary.

If you're thinking of investing, be sure you understand how the accounting works and that you are comfortable with why management is doing it that way.

There is no reasonable way to compare two companies in different industries using a standardized accounting method. Even GAAP is not designed to do that. It's a nuance of business valuation and ultimately in the case of a company like GroupOn the valuation is mostly due to what investors are willing to pay.

And yes, it's reasonable for a firm to choose one accounting approach over another b/c it makes the company easier to manage, or b/c it makes it easier to show the company's true strengths to the market (aka investors).

> any savvy investor should have realized this

That's why the SEC moved on this. It shouldn't take a savvy investor to try and catch phony accounting for a public company. They're selling on commission and counting the total sale as revenue, I'm not sure what kind of third rate accountant would suggest that unless tasked with pumping up the appearances of revenue.

A pretty good comparison industry is ticketing. A ticket distributor like TicketMaster sell tickets on commission but collects the cash and pays out to the business owners who were selling the ticket. Like Groupon, TicketMaster holds onto the cash for a while (easier to do refunds and what not if something happens to the event). Guess how TicketMaster books revenue? They only count their commission. The total value of tickets sold is reported, but called "Gross value of tickets sold" and never mentioned other than to be able to show how their commissions are doing.

Mark-to-market helped trigger the housing crash? Really?

Or is it that having to mark assets at their current value revealed that much of the bank's holdings were worthless, which in turn led to the banking crash?

Your proposed explanation is a very incomplete version of what was actually going on.

It depends on what the purpose of the assets was on a company's books. In some cases marking to market makes sense and in others it doesn't.

In the case of assets used as reserves (companies are allowed to use securities as reserves for underwriting risk) marking to market means that when the underlying commodity has a bubble, the firm suddenly has significantly greater ability to take risk... then if the asset price falls the firm is suddenly way over-extended.

If a firm is responsibly underwriting its own risks, the firm's accountants will determine which assets are suitable and which are not. However in a heavily regulated, heavily subsidized financial system like the US, firms have an incentive to take the maximum risk allowed by law, with the expectation of below market rate loans or other bailout assistance if the practice turned out (in hindsight) to be too risky.

In the post financial modernization act boom, firms found ways to treat all kinds of risky assets into reserves, and regulators believed that it was nearly impossible that housing prices would fall more than a few percent. The cabal of large firms and regulators squeezed additional returns out of various schemes for a few years, while shoving significant systemic risk (all built upon the assumption that housing prices would not fall significantly) into the corners and tranches of all sorts of complex products.

I'd argue that any complex financial system will ultimately result in coordination to ignore inconvenient systemic risk.

> If a firm is responsibly underwriting its own risks, the firm's accountants will determine which assets are suitable and which are not. However in a heavily regulated, heavily subsidized financial system like the US, firms have an incentive to take the maximum risk allowed by law, with the expectation of below market rate loans or other bailout assistance if the practice turned out (in hindsight) to be too risky.

And yet there were systemic failures before the financial industry was heavily regulated (that's why there is regulation in fact!). It turns out people are greedy and left alone or regulated will still make risky decisions to try and squeeze out more money.

The pre-regulation environment was not a modern information economy like ours is today. In today's world, financial regulation is created at the behest of industry to create the appearance of responsible management.

Much like a seatbelt made of paper, financial regulations are for appearances only, as the recent massive crisis should illustrate profoundly.

Financial firms are the top donors to both political parties and are the recipients of unprecedented handouts. The idea that we have any sort of meaningful financial regulation at all is absurd.

The best evidence of this is how people nitpick about a tangential but easily sound-bitable thing like marking to market or the SEC jumping on Groupon after there's already blood in the water. They bear no impact on the quality and scope of governmental oversight over the financial system, yet the public is supposed to believe that tales like these are evidence that oversight is occurring.

The most charitable argument in favor of the SEC is that it's understaffed/underfunded and must focus on high profile enforcement actions. In reality, it's a sham agency whose role is to fool the public into thinking that the financial services industry is regulated in a way beneficial to the public.

Even today, the core problems that actually caused the recent crisis have not been addressed. These are the government programs that artificially elevate housing prices and the conflicts of interest had by ratings agencies who depend on the business of those whose products they are intended to rate.

It's important to realize that we live in an economy where 50% of capital is allocated by the government and where the private/public partnership of the financial industry and regulators has an extremely large impact on day to day life.

This miscalculation of revenue was one of the major issues highlighted by these two business/accounting professors:

http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/281 "TRUST NO ONE, PARTICULARLY NOT GROUPON’S ACCOUNTANTS"

Their two other major concerns:

• Groupon's positive cash-flow is a temporary illusion:

"After downplaying the ACSOI, Groupon has begun touting its 2010 free cash flow of $72.2 million (operating cash flow of $86.9 million less property and equipment purchases of $14.7 million). Unfortunately, operating and free cash flows are driven solely by the fact that Groupon is dragging its feet in remitting coupon sale payments to its merchants. Had merchants been paid in a timely fashion, the Company’s free cash flows would likely have been closer to zero and possibly even negative. Seriously, in a competitive market space, how long does Groupon believe that it can get away with a 60 day payment delay (or longer) to merchants? Merchants simply cannot stay in business by providing services (even discounted ones), two months ahead of payment. Simply put, Groupon’s free cash flows aren’t real. They come from an unusual (and likely temporary) vendor financing model, and are not sustainable."

• Groupon's internal controls are inadequate to make their self-reported numbers credible:

"It is absolutely ludicrous to think that Groupon is anywhere close to having an effective set of internal controls over financial reporting having done 17 acquisitions in a little over a year. When a company expands to 45 countries, grows merchants from 212 to 78,466, and expands its employee base from 37 to 9,625 in only two years, there is little doubt that internal controls are not working somewhere. Any M&A expert will agree. And don’t forget that Groupon admitted to having an inexperienced accounting and reporting staff. Note that Ernst & Young supplied an audit opinion about the financial statements but not about the entity’s internal control system. E&Y instead points out, “We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.” So we ask how have these weak or nonexistent controls affected the numbers Groupon reports? Can we trust these numbers?"

Groupon's business-professor cofounder, Eric Lefkofsky, has dumped about $382 million of his shares in the prior private financings.

>> Groupon's business-professor cofounder, Eric Lefkofsky, has dumped about $382 million of his shares in the prior private financings.

It's important to know what percentage of his total shares he dumped to form an opinion on this.

Agreed. It's certainly not unheard of, or even necessarily unsavory, for founders and early-stage investors to take some profit off the table in later financing rounds. Since Groupon received HUGE financing prior to IPO, taking $382mm out might not have amounted to a giant percentage. Then again, it may have. But the percentage is indeed the more interesting figure.

Fair enough. Per AllthingsD [1], Andrew Mason has sold about 4 million shares, for $27 million. Per the latest S-1 [2], it appears Mason retains about 23.5 million shares, so he's sold about 15% of his earlier stake.

Eric Lefkofksy has sold (through related entities jointly owned with his wife) about 32 million shares, for $382 million. From the latest S-1, it appears he and his LLCs retain about 129 million shares, so he's sold about 20% of his earlier holdings.

Interestingly, Groupon also paid out about $27 million in dividends in 2009.

Mason diversifying away from Groupon makes good sense, without sending much of a negative signal, as his net worth was probably 99%+ in Groupon before the 2009 dividend and then later stock sales. Lefkofsky was already very wealthy (and thus presumably diversified) from other ventures, so his sales are a stronger signal that he thinks other investments are more promising.

[1] http://allthingsd.com/20110602/where-did-groupons-billion-do...

[2] http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...

Ok, so I'm trying to wrap my head around he ultimately gets screwed on this... Are the people/entities who bought $382mil worth of shares potentially screwed now that they see the real valuation? Is there any potential for fraud in this case?

He probably sold to (supposedly) sophisticated investors that thought they'd scam retail investors later on.

I'm more interested in how many shares the founders wanted to sell.

>It's important to know what percentage of his total shares he dumped to form an opinion on this.

not in such a case. 382M out of close to 1B round - it is obvious that he dumped _all_ what he could dump. The rest of his holding doesn't matter - it is just paper.

If Groupon goes public at a $20bn valuation it will harm future startups. Groupon is not worth that valuation. If professional investors IPO Groupon at a $20bn valuation, this will seriously harm public markets, specially retail, non-savvy investors. The public will then question the whole startup ecosystem, their valuations and even see it as a bubble 2.0. Those professional investors/VCs (Kleiner Perkins, DST, etc.) who have purchased Groupon equity have to suck up their losses. It is their fault for buying into Groupon at dubious valuations. If VCs pump and dump Groupon, VCs will gain a reputation equal to those in Wall Street.

I'm not sure saying "revenue fell in half" is accurate. It looks like they are clarifying what revenue it actually makes ie, instead of counting the full value of the coupon as revenue, they are now adjusting revenue numbers to reflect what their cut of the coupon is. Still sort of shady that they were quoting the first number to begin with...unless that is totally common, which I wouldn't know.

You're right, 'fell' is a misleading word and not used by the WSJ in this case. This is Groupon being forced to follow usual standards for when the revenue is 'theirs' rather than someone else's. It's a restatement rather than a period-to-period decline.

I think the word financial types used is "revised". As in - Groupon's QX revenue revised down to half it's original value.

"Fell" means there is some kind of time-dependence. If you already thought Groupon's accounts were overstated, this isn't news, while falling revenue would be.

Not only that, this is a terrible mistake by the SEC. Groupon should count total receipts as revenue, that way shareholders can see the average merchant split across periods. It is deceptive to report net-revenue as gross revenue. The old way is far more transparent.

Not the first stupid thing the SEC has ever done.

"Previously, when it sold a restaurant gift certificate for $10, for instance, it would book the full amount, even though a portion went to the business owner."

I keep trying to think of something to say about this. I'm speechless.

What else do you need to know to accept that these guys are dishonest?

Honest question: Why are you speechless? Did you read the S-1? They always documented how much they paid out to businesses.

Yes, calling all $10 revenue is disingenuous, but this accounting change doesn't effect their profitability (or lack thereof)

Yes, calling all $10 revenue is disingenuous

No, it isn't. That's the definition of revenue. What's disingenuous is obscuring the costs that correspond to, and apparently exceed, that revenue.

If I buy an iPod from Apple for $150 and sell it to you for $199, my revenue is $199. That's the definition of revenue. Along with that revenue, I have $150 COGS (cost of goods sold), plus my own expenses. So my net income (revenue) might be anything less than $49.

If they take in the full amount and then pay some percentage of it to the supplier, isn't that just treating it as "cost of goods sold" the way you would account for a normal reselling arrangement like retail, wholesaling, etc.?

I can see why the SEC might want them to change it, but it's not obvious to me that the only way you could come to this type of accounting is dishonesty. Am I missing something?

It is standard GAAP accounting. Amazon reports revenue as the sales price of the item sold, even though a portion goes to suppliers. Google reports total revenue from Adsense, even though a portion of the revenue goes to the site hosting the ad. In my opinion as an ex-finance/accounting guy, the SEC is wrong in this case, for a few reasons:

1. The share that the business receives is negotiable and different for different vendors.

2. Groupon is the point of sale for the full amount of the revenue.

3. The merchant receives their share at a different time from when the Groupon receives the revenue.

Good point. Also, aren't the vendors effectively under 'accounts payable' because Groupon doesnt have to pay them immediately? They can float that money for some 30-60 days right? I know several business that do this (including mine) and no one has objected to how are revenue is stated. not that we're IPOing anytime soon :)

It is interesting to note some counter examples though. A real estate agent books only the commission as revenue, not the price of the property. A stock broker does the same. A delivery company that delivers something COD, also only books the fees, not the value of the goods. The question is, is Groupon acting more like a broker/agent, or are they responsible for making sure the service is rendered? It is not obvious, so there is some logic to the SEC saying Groupon should record revenue as if they are an agent/broker.

Either way, the initial comment that "OMG, Groupon are obviously crooks", is misinformed.

Groupon is handing all the money and keeping it for a significant period of time. A broker doesn't touch the transaction price.

I disagree.

Groupon is a commissions based business; as I understand it, such businesses do not count an entire deposit as revenue.

Indeed, most businesses which hold and forward cash on behalf of others don't count incoming monies as revenues. For example, banks don't book deposits made by account holders as revenue.

(IANAA, seek professional accounting advice).

"Groupon is a commissions based business; as I understand it, such businesses do not count an entire deposit as revenue."

They take title in the sense that they are paying (although paying late) and buying a certain amount of product (after they have received orders.) A commission would be if the same thing happened and the restaurant forwarded x% of the sale to groupon.

Here's an example. You are a programmer and I send you a customer. The customer gives you $5000 worth of work. You pay me $500. So you collect the money and pay me a commission. Other way: I get the $5000 from the customer (I have the contract with them) and pay you $4500 for what you have done (and have added risk etc.)

In the case of the first example I don't book $5000 in sales. In the case of the second example I do book $5000 in sales. (Forget the margins there are many businesses (supermarkets) that operate on small margins.)

Now, for accounting purposes there could be reasons that I don't want to book $5000 in sales even though I could (stuff they don't teach in school btw.) Like if I book more sales then there might be some local gross receipts tax whereby I have to pay % of sales etc (or something like that). Of course if I am applying to a bank for a loan maybe I want the higher sales because they will be more impressed. This by the way is why you need to know as much as you can because professionals won't always tell you all the things you need to know to have the best outcome.

> They take title in the sense that they are paying (although paying late) and buying a certain amount of product (after they have received orders.) A commission would be if the same thing happened and the restaurant forwarded x% of the sale to groupon.

No, they work on a commission--the product they sell is the future services/products of a company who they have agreed to sell on behalf of. It's like TicketMaster collecting money for an event and then paying the promoter in a lump sum less agreed upon commissions (and yes, TM only counts their take as revenue).

Groupon doesn't buy a certain amount of product, they collect revenue and then pay out based on receipts. No products are purchased, they're simply a third party affiliate that has an email list and sales force.

> Here's an example. You are a programmer and I send you a customer. The customer gives you $5000 worth of work. You pay me $500. So you collect the money and pay me a commission. Other way: I get the $5000 from the customer (I have the contract with them) and pay you $4500 for what you have done (and have added risk etc.)

That's a horrible analogy. A better one is you make an agreement with a programmer who has a software package. You will sell the software for an agreed upon price and then split the proceeds 50/50. Your revenue is whatever your cut is, you're working on commission. This is exceedingly common online for affiliate programs, the only difference is Groupon approaches the business about starting the affiliate program just for them.

You are wrong. Groupon's accounting was NOT standard GAAP accounting.

At issue is whether or not Groupon was the principal or the agent in the transaction. To determine whether or not Groupon is the principal (which they would need to be in order to book the entire coupon as revenue) they would have to satisfy ASC 605-45. The following was taking from http://www.pwc.com/en_GX/gx/pharma-life-sciences/pdf/med-tec...:

ASC 605-45-45, Revenue Recognition—Principal Agent Considerations [formerly contained in EITF 99-19], includes a number of indicators of gross and net arrangements. Indicators to evaluate gross treatment include: • The seller is the primary obligor in the transaction. • The seller has inventory risk (general inventory risk before customer order is placed or upon customer return or risk of loss after customer order or during shipping). • The seller has latitude in establishing price. • The seller changes the product or performs part of the service. • The seller has discretion in supplier selection. • The seller is involved in the determination of product or service specifications. • The seller has physical loss inventory risk. • The seller has credit risk.

It's obvious they were the agent and not the principal for the transaction. This is why they were forced to change their accounting for their revenues.

I think Groupon could have been more conservative in how they described their financial statements. However, it's a huge stretch to call them dishonest.

As a commenter put it here: "They were forced into accounting that Priceline hasn't been forced into in 15 years. Accounting that, I might add, provides no real additional visibility into the business. Now, it's a high-margin business with 1/2 the revenue it had before. Then it was a meh margin business with about 2x the revenues. This is not the SEC doing us any favors. It's rearranging chess pieces."

http://allthingsd.com/20110923/more-groupon-amends-its-s-1-i...

Given the media scrutiny on this, it's clear now that Groupon should have made this adjustment earlier, and referred to their full pass-through revenue as "gross billings" instead of "gross revenue". That would have been the most conservative way to describe their numbers.

Still, it's a big stretch to call this dishonest. It was definitely not conservative labeling. But all the numbers were clearly disclosed, and the labels clearly described. If you read the S-1, it was very clear how their financials worked. The problem is that this is getting so much media attention that people aren't reading the S-1, and are getting their information from the media.

This doesn't seem so shady when you realize that there are also these things called "liabilities" that you need to account for. It should be fine to count the whole cost as revenue as long as you are also accounting for the expense on the other side.

It was a bit aggressive but not absurd and not really dishonest (they weren't trying to hide anything). And ultimately doesn't impact cash flow or earnings which are much more important.

It's like Priceline counting the whole fare as revenue whereas Expedia only counts the commission.

Late to the party, but every ad network I know counts 100% of the money they receive from the advertiser as revenue, and the money paid out to the publisher as cost of goods sold (COGS). This includes Google. Why's that dishonest?

Maybe a better way to put it would be "gaming the system".

Gaming the system is more or less an "oops hands got caught in the cookie jar" as opposed to dishonesty? Bringing up a certain plausible deniability (which they have) for what they have done. A child who didn't know better. (That's the image of course not the reality. Boys will be boys etc.)

Obviously to a certain extent everyone does this (only varies with the degree of deception and how much the media questions it). Facebook or any site releasing users and including people who have created multiple accounts. So they can get up to a magic number that sounds good in the press. People like large numbers. If you're at a party and someone says "how many employees" you don't say "5 part time and 5 full time" you probably will just say "10". "We have an office in NYC" means you have someone working from home in NYC. Etc.

In the 90's the big thing was the press repeating how many "hits" you got where each image on a page would be a "hit" (as opposed to unique IP's or users whatever.) So that was easy to manipulate.

This really begs the question: who the hell is in charge there? How do you not take one look at your finances and immediately jump on a multi-billion dollar buyout that a giant internet company offers you? Or did Google get a closer look at their books and see this coming?

I have heard it suggested that Google either did or likely did have performance requirements as part of the deal, and that Groupon knew they couldn't meet them.

All my friends in finance, including those in auditing for a Big 4, spotted this when the S-1 first came out. It was obvious to them that this was completely wrong.

So it indeed does beg the question, who is in charge? What were they thinking when they tried to get away with putting this in their S-1? Were they really that inept in revenue recognition, or were they trying to pull a fast one on their potential investors? If anything, it really hits against the credibility of the executives.

As has been mentioned many times, the fact that they sold shares for 900MM and then cashed out their initial investors when Groupon was bleeding money speaks volumes about the character of those in charge.

I wouldn't invest a single penny in this company.

Who is in charge? A business professor who lectures sometimes at the U of Chicago Booth business school.

Only because this is HN where we're all picky: http://begthequestion.info/

If the phrase is misused 9 times out of 10, then redefine it. That's the hacker way.

Also, I can't help but wonder if the fallacy was named based on some colloquialism to begin with.

The fallacy is named because one of the definitions for "beg" is "to evade," which is why "begging the question" can be recast as "evading the question" (although you do lose the subtle part about assuming the conclusion to prove the conclusion).

Thank you. Now I actually learned something from this conversation.

Yes, it's based on a literal translation of a latin idiom: petitio principo (IIRC). A more unambiguous phrasing is: assuming the antecedent.

If we redefine everything based on what 9 out of 10 people do, what will the 1 out of 10 do that are trying to communicate effectively using precise terminology that wait... no longer exists for the concept they're trying to convey.

It won't matter that they can't communicate, since they will have been marginalized as pedants.

Maybe by learning a bit about etymology.

What do insects have to do with it?

Much as I sympathise with this view, communication isn't about what you say, it's about what the other person hears.

If 9 out of 10 people use it a particular way, it has already been redefined. What we're talking about here is the difference between prescriptive and descriptive linguistics: definition-oriented vs. usage-oriented.

If you're telling prescriptivists to stop prescribing, aren't you being a prescriptivist for descriptivism?

Descriptivism lets language evolve. Prescriptivism (people trying to push it back) is part of that evolution. According to your principles, you should just accept it as the way the language evolves.

Prescriptivism provides the foundation for descriptivism's point of departure, and descriptivism provides for the evolution of language. They are part and parcel to each other.

On the contrary, nuance matters.

This democratization of language isn't necessarily correct. There's a reason why we don't declare the existence of God as truth just because a majority of the population believes it.

There's a reason why majority rules isn't always appropriate. It's because often the majority can be wrong. We won't redefine the answer to the Monty Hall problem just because 9/10 people get the wrong answer.

If we're constantly redefining words and meanings, then why have definitions at all?

Language is dynamic, and words do change definition over time.

Having said that, I still prefer to use it correctly.

I never knew there was a difference. Thanks for pointing it out!

While descriptivists and other such laissez-faire linguists

All linguists are descriptivists.

Some are prescriptivists.

Standard academic linguistics is by definition descriptive.

It's a bit of a silly dichotomy. No linguist will deny that certain sentences are ungrammatical ("cat sees I"), so they are just wrong. And lots of philosophers believe that normativity, what is wrong and right, is an important part of language. But it appears to be something dynamic, language changes over time, yet I can't change language by pretending dog means cat today. So prescriptivism is wrong in the sense that you can't claim to have the sole authority on something. But descriptivism is vacuous, in that it doesn't explain the pervasive tendency for people to consider things to lie on continuum of wrong and right.

I think your definition of descriptivism is incorrect. Descriptivism certainly doesn't mean everything anyone ever says is gramatically correct. Please read http://itre.cis.upenn.edu/~myl/languagelog/archives/001843.h... .

I offered neither a definition nor a description. Indeed, descriptivism doesn't mean that, and that link is where I got the example from. I was correcting the implicit definition people use when they invoke descriptivism as a cop out from any argument on usage (although I certainly applaud ending any such argument). Descriptivism is a stance for linguists to take in their research, and has nothing to do with the rest of the world.

Fair enough -- you're correct.

Coming back to the original point (and not in response to you in particular), using "begging the question" to mean "raising the question" is very common now, and trying to object to that does no one any favours.

That it's common is not sufficient--the majority is not necessarily right. I think pointing out a historical misunderstanding is worthwhile, especially in a forum with smart people or in an academic setting. Using this expression with a meaning based on a misunderstanding reveals that one wants to sound learned without actually being that, so I do think it's a favor to point it out. Of course it's an uphill battle and there's no hope, but I still think there are enough people who do care about where things come from and using them right.

Charles in Charge.

"The chief operating officer, Margo Georgiadis, is returning to Google" ... nice way for Google to get an inside into Groupon

This is an interesting hypothesis, certainly not the first thing that came to my mind, but an interesting thought. Why Google would want to buy Groupon at this point is beyond me (perhaps for their gigantic sales force and access to local businesses) but I guess you never know. I don't think there is anyway Google offers Groupon the amount they previously did.

Did Google said they're still interested on Groupon?

No, Google is still only likely interested in Groupon's market, which they're going to get now for much less than $6B.

I've always thought Groupon was funny. I could start a business where my sole business plan was that for every 95 cents you gave me, I would give you a dollar, no strings attached. I'd probably have a billion in "revenue" even quicker than Groupon, and I would probably be more profitable too. This might be a gross oversimplification, but it's still true.

You mean like a Bank CD? What you've described isn't that crazy.

They really should have taken the $8 billion from Google.

This is what happens when you get startup fever. You let early success go to your head, start turning down reasonable offers left and right, and then you go belly up.

Or you become Apple, Google, Microsoft, Intel, Facebook, or a dozen others tech giants. For some people money is just a byproduct of their other, much more subtle, goals.

Perhaps, but this is easy to say now.

You would likely call them fools for leaving $12 billion on the table had they taken the $8

They went for the two in the bush when they had one in the hand. It's one thing to reject $60K when you could go for $200K. It's another to reject $6B to hope for $20B. Even though the ratios are the same, the maximum downside of each is considerably different.

Or, as others have speculated, Google got a look at their books and wouldn't touch it with a ten-and-a-half foot pole; to save face, Groupon claims to not be interested in the offer.

Isn't the IPO expected to value Groupon at over $15 billion?

Or did you mean "should not"?

Not sure the IPO is going to happen now, and if it does it could be at half that, or less.

Wasn't there a post a few months back claiming the current tch market wasn't a bubble because during the last bubble firms bent over backwards to claim revenue and now they don't?

Mmmm...claim chowder.

The best part: COO exiting pre-IPO? Are they even trying anymore?

On the plus side, at least this happened pre-IPO. It'd be a giant legal shitstorm if they restated revenues after selling shares in an IPO.

the groupon rise and implosion has been pretty spectacular

Indeed. You were among the few skeptics when Goupon rejected Google's buyout offer, and even you predicted it would take 2 years for the irrational exuberance to fade: http://news.ycombinator.com/item?id=1967975

On the plus side, the company seems to be creating massive consumer surplus; Mrs. Browl seems to do half her shopping through Groupon. At this stage, the company doesn't look to be doing any worse than Bank of America or the Eurozone, so I guess they'll stagger on for a while yet.

Maybe I'll buy a few shares in the IPO. If I have kids and they ask why I won't buy them a car, I can pull out the share certificates and start waffling about the Dark Days of Great Recession until they get bored and take a bus.

Shadenfreude at its best

Headline could be improved.

While revenue fell in half, gross margin just increased 50%! In other words, this is just perception and has no bearing on the performance of the actual business.

Also, headline seems to imply that COO left because "revenue fell in half". There's no reason to believe that.

The article states that "a source" claims she was not treated how a normal person at that level should be.

Can someone explain to me why Groupon's margins are so thin/negative? Don't they basically take half of the revenue that comes in as part of a groupon? Shouldn't their overhead be little more than the site, plus sales staff, plus devs? Where does their money go?

I would imagine it's the employees part. A lot of the speculation about Google's motivation to buy Groupon was about the sales staff, which has to be pretty extensive to cover all the businesses in all the cities Groupon operates in.

If it's as simple and as basic as a bloated sales force that can't pull its own weight, then that definitely casts a harsh light on their viability in general.

No, in 2010 they spent $263M on customer acquisition, and only $233M on everything else (rent, servers, employees, bonuses). [1]

[1] http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...

IIRC, in Groupon definition, customer acquisition is money spent on the sales teams.

Advertising takes up a lot of it.

"Where does their money go?"

Multiple Superbowl commercials starring famous people don't come cheap, I would imagine.. and that is one of the ways Groupon has been trying to "party like it's 1999", so to speak.

Not to mention what seemed to be 1/3 of Google's entire advertising inventory. For a while I couldn't go to most sites without seeing a Groupon ad.

Would Groupon survive for another year or would it file bankruptcy?

Has Jason Fried added anything to this discussion after announcing he left the board? I'd be interested in his take as a past insider.

Remember this quote from Mason's leaked memo: "We are generating cash, not losing it — we generated $25M in cash last quarter alone, adding to the $200M we had before. In other words, we’re doing the opposite of running out of money."

He chose the words "generating cash" carefully. If it wasn't contrary to his point, he should have addressed revenue instead.

A past discussion that seems to be playing out:

http://news.ycombinator.com/item?id=2980323

How much longer is Andrew Mason going to be in charge at Groupon? His head has to be on the chopping block at this point right?

For masterfully building the fastest growing company in the history of business?

This IPO is looking more and more like a scam.

I still cannot believe that Google was willing to $6bn! The non-scaling nature of GroupOn always seemed obvious to me.

I don't know. As far as I know, Priceline (PCLN) is doing the same thing. Are they going to push PCLN do the same?

There are rules that govern what amounts should be classified as revenue or not. I believe in Priceline's case, since it actually buys the flights from airlines and has loss potential, it makes sense to book the whole fare as revenue.

OT - When I first read this article, the former COO's last name was spelled 3 different ways.

Yes, there are a handful of vowels there, so I can understand how the WSJ still left one misspelling at the end of the article after editing the original.

It's amazing to me how far Groupon has fallen recently. I'm curious to see if investors file lawsuits against the founders for misappropriation of funds given that the founders took so much money off the table.

Is there any possibility that current/past investors in Groupon sue the company because they invested based on bad financials?

I smelled a rat, especially when they started to open offices in places like Bulgaria just for the hype.

How were their initial steps legal? How can a company file for an IPO with such bullshit metrics?

You can write anythin you want ad long ad there is a * at the end. In this crazy IPO market no one reads the fine print.

It's not that no one knows the fine print, it's that the people who get rich of IPOs (financial people) would typically still make money off an IPO which is based on flawed numbers. So the incentive is not there for the financial people to stop it, the incentive to actually promote it is there.

What makes you say there's a "crazy IPO market?" I can only name four high-profile tech IPOs so far this year (P, LNKD, FIO, Z) - it seems that most high-profile tech companies are content to continue closing massive rounds instead of going public (probably because a lot of them need to generate better figures to avoid pulling a Groupon, but that's speculation on my part).

And it's precisely because the SEC read the fine print that Groupon continues to have issues surrounding its IPO. It's their job to read the fine print.

Counting the amount of money your customers pay you as "revenue" is not a bullshit metric.

Amazon books revenue when someone orders a product, even if that product is "fulfilled by" a different merchant behind the scenes. Some people think they shouldn't be able to count that as revenue. Intelligent accountants disagree with one another.

Accounting is hard. It's rarely black and white. Anyone who was seriously interested in buying Groupon knew what their business model was (collect X from consumer, give X/2 to merchant) and this restatement won't change anyone's informed opinion.

So you are saying that even if no money goes to amazon, they book revenue?

I understood it as, money goes to Amazon but then it immediately moves to the merchant. Showing the money as a revenue then eventually an expense. They probably hold that revenue for a certain financial period and write the expense in another. IANAA.

I looked into their annual report:

http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol...

In 2010, they say "Generally, we recognize gross revenue from items we sell from our inventory and recognize our net share of revenue of items sold by other sellers."

(Page 19, the second paragraph)

portman's comment could still apply to sales where Amazon acts as the merchant instead of just the storefront.

It is kind of entertaining watching Groupon slowly implode...

I guess Groupons collapse would actually make a pretty neat movie

Someone should get Aaron Sorkin on that

Wish they'd get it over with quick to be honest. A lot of honest people are still getting screwed over by Groupon.

Definitely the beginning of the end...if there was ever one.

Didn't we all see this coming for a long time?

So much for that spectacular business model that revolutionizes local business. The Groupon pump and dump will make a good chapter in a finance textbook someday.

the technical MBA term for this is "oops!"

I really don't know how some of these people aren't in jail already. It's as if everyone forgot that Enron happened.

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