The Latest from Groupon: Eight Brutal Facts

Groupon just can’t seem to find its feet. Before it initially filed to go public, it was lauded as the top deals site on the web. In no time, it grew a substantial operation reaching thousands of merchants and millions of users. And then, with its first S1 filing, the honeymoon ended. Lack of profits, founders pulling big piles of cash out of the operation (via dividend payments following venture capital infusions) and merchant frustration were among the issues that surfaced. Yet, Groupon charged on. The company seems intent on going public, despite being so young. Of course, the fact that the founders have cashed out a pretty hefty amount already suggests they’re eager for more cash (I guess I understand that) and want to make the liquidity event happen, market conditions be damned. This morning, the deals site filed an amended S1 with the SEC, and it’s packed with information … and not just about new, bizarre and likely useless accounting metrics. Here’s what you need to know, the brutal truth from Groupon, straight from the horse’s mouth: 1. Good news and bad on monstrous losses: the good news is that losses are flat quarter over quarter. Unfortunately, that comes with bad news – losses were big. So, flat translates to ‘still big’. 2. Top line and users trending in the right direction: revenues and email subscribers are both up quarter over quarter. Of course, that’s favorable. However, the fact that these measures can grow while losses remain flat suggest that profitable growth remains elusive. 3. When profits aren’t really profits: in Q2, gross revenue was $878 mn, with the share of it going to Groupon (rather than the merchant) hitting $341 mn. This compares to $644.7 mn in revenue and $270 mn in ‘gross profit’ for the first quarter. Net income, on the other hand, state at a loss of $102.7 mn for both quarters. 4. Accounting abandonment: remember ‘ACSOI’? Erik Sherman at Inside Investor Relations wrote about it yesterday. Well, it's gone today. According to Business Insider, Groupon ‘dropped the sketchy “Adjusted Consolidated Segment Operating Income,” or ACSOI as was expected.’ 5. Job creation: neither Washington nor Groupon seems interested in making profits, but at least the latter can create jobs! Groupon’s headcount is now up to 9,625. 6. Losing home-field advantage: competition in North America has led to a decline in merchants for the quarter. Competitors, such as rumored IPO play LivingSocial, are gaining ground. Meanwhile, revenue and participating merchants are up outside North America. 7. No bank left behind: Goldman Sachs, Credit Suisse, JP Morgan, Allen & Co, Bank of America Merrill Lynch, Barclays, Citi, Deutsche Bank, William Blair & Co, Citadel, Loop Captial, RBC Capital, The Williams Group … it feels like the list of banks not underwriting this IPO would be shorter. 8. Nobody cares: does anyone really use Groupon? It may have 115 mn subscribers, but Business Insider notes that it sold 32,525,739 Groupons in Q2, up 4.4 mn quarter over quarter. So, Business Insider poses a rather fair question: ‘How many people actually use Groupon after subscribing?’

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The Latest from Groupon: Eight Brutal Facts

Can Groupon really pull this off? Really?

Tom Johansmeyer

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Tom Johansmeyer