SEC Investigating Groupon Accounting Records, Could Stall IPO

By Erin Harrison July 28, 2011

Groupon’s impending initial public offering may be stalled amid wariness of the online discounter’s so-called self-selected metrics that have drawn scrutiny by federal officials, according to media reports.

Groupon, which registered with the Securities and Exchange Commission in June in taking the official steps to go public, has several “unique ways” of measuring its success that have raised red flags, MSNBC reported.

One such area that has come under the microscope is Groupon’s reporting non-standard financial metrics such as gross profits, a way of measuring its revenue. However, Groupon has reportedly already amended its initial S-1 form filed with the SEC.

According to Groupon’s June 1 SEC filing signed by  Groupon CEO and founder Andrew Mason, “on the day of this writing, Groupon’s over 7,000 employees offered more than 1,000 daily deals to 83 million subscribers across 43 countries and have sold to date over 70 million Groupons. Reaching this scale in about 30 months required a great deal of operating flexibility, dating back to Groupon’s founding.”

Groupon could raise up to $1 billion in an IPO that could value the company at up to $10 billion, according to MSNBC.

In the filing, Mason outlines three financial metrics tracked by the Chicago-based company.

The first is gross profit, “which we believe is the best proxy for the value we’re creating,” Mason explained in the SEC prospectus.

“Second, we measure free cash flow – there is no better metric for long-term financial stability. Finally, we use a third metric to measure our financial performance – Adjusted Consolidated Segment Operating Income, or Adjusted CSOI.”

The last metric, namely the one under scrutiny, is Groupon’s consolidated segment operating income before new subscriber acquisition costs and certain non-cash charges.

“We think of it as our operating profitability before marketing costs incurred for long-term growth,” the filing said.

In other Groupon news, TechZone reported earlier this month that the digital discounter changed its privacy policy giving the company more latitude with users’ personal information.

Erin Harrison is Executive Editor, Strategic Initiatives, for TMC, where she oversees the company's strategic editorial initiatives, including the launch of several new print and online initiatives. She plays an active role in the print publications and TechZone360, covering IP communications, information technology and other related topics. To read more of Erin's articles, please visit her columnist page.

Edited by Rich Steeves

Executive Editor, Strategic Initiatives

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