Bloomberg News

Groupon Alters Accounting Method in IPO Filing, Reports Loss

August 10, 2011

(Updates with analyst’s comment in third paragraph)

Aug. 10 (Bloomberg) -- Groupon Inc., the biggest provider of online coupons, reported losses for the second quarter and the prior year after backing away from an accounting method scrutinized by U.S. regulators.

Groupon abandoned controversial figures for adjusted consolidated segment operating income, or adjusted CSOI, in an amended initial public offering filing today. The Securities and Exchange Commission was examining that accounting practice in a routine review of Groupon’s proposed $750 million IPO, a person familiar with the matter said on July 27.

New accounting makes Groupon “a much less hairy product to look at” for IPO investors, said Nitsan Hargil, director of research at GreenCrest Capital Management LLC in New York. “The change eases my concerns from the point of view of the company hiding information from me. I am still not as happy as I would like to be with the numbers themselves.”

Based on CSOI figures reported today, the company had a loss of $181 million last year. In a filing last month, the company had reported adjusted CSOI of $60.6 million for 2010.

The second-quarter net loss was $102.7 million in the period ended June 30, compared with a loss of $35.9 million a year earlier, Groupon said today. Quarterly sales increased 10- fold to $878 million.

‘Growth Opportunity’

“There is a lot of growth opportunity still so they could continue in this way for a while,” said Greg Sterling, an analyst at Opus Research in San Francisco, in an interview. “But as a public company, investors would be unwilling to tolerate losses like this for too long.”

Groupon cited adjusted CSOI as one of the main criteria for measuring the business in prior filings. The number is pro forma, meaning it excludes non-cash expenses and online marketing expenses used to attract new subscribers, raising concern that it may mask Groupon’s costs. Unlike the adjusted metric, CSOI includes marketing and other costs associated with adding users.

Groupon said in the filing today that gross profit is a key metric and “a reflection of the value of our service.” In the first half of 2011, gross profit more than doubled to $611 million, up from $280 million in the first half of 2010.

Groupon’s unusual approach to accounting may have caused “digestive problems” with the SEC, possibly delaying the initial public offering by one month, Richard Sauer, a former official at the government agency, said last month.

Coupon Revenue

The company said its average revenue per coupon sold was $25 in the first half of this year, compared with $23 in the first half of 2010. Groupon made an average of $18 from each of its 115.7 million subscribers in the first six months of this year.

“The filing will have to speak for itself,” said Joe Carberry, a spokesman for Groupon at Brunswick Group LLC. SEC spokesman John Nester declined to comment on the Groupon filing today.

--With assistance from Zachary Tracer in New York, Joshua Gallu in Washington, and Emily Chang and Cory Johnson in San Francisco. Editors: Lisa Rapaport, Jillian Ward

To contact the reporter on this story: Douglas MacMillan in San Francisco at

To contact the editors responsible for this story: Tom Giles at

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