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Groupon Restates Revenue, Revenue Fell In Half, COO Exits
- vaksel 15y agothe groupon rise and implosion has been pretty spectacular
- anigbrowl 15y agoIndeed. 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 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.
- deleted 15y ago[deleted]
- dasil003 15y agoShadenfreude at its best
- antimora 15y ago"The chief operating officer, Margo Georgiadis, is returning to Google" ... nice way for Google to get an inside into Groupon
- jmjerlecki 15y agoThis 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.
- dennisgorelik 15y agoWould Groupon survive for another year or would it file bankruptcy?
- clobber 15y agoSo 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.
- Pewpewarrows 15y agoThis 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?
- sliverstorm 15y agoI 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.
- steve8918 15y agoAll 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.
- pork 15y agoWho is in charge? A business professor who lectures sometimes at the U of Chicago Booth business school.
- danso 15y agoOnly because this is HN where we're all picky: http://begthequestion.info/ http://begthequestion.info/
- cellis 15y agoIf the phrase is misused 9 times out of 10, then redefine it. That's the hacker way.
- maukdaddy 15y agoThey really should have taken the $8 billion from Google.
- wavephorm 15y agoThis 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.
- coffeemug 15y agoOr 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.
- ubi 15y agoPerhaps, 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
- biot 15y agoThey 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.
- pbreit 15y agoIsn't the IPO expected to value Groupon at over $15 billion? Or did you mean "should not"?
- justincormack 15y agoNot sure the IPO is going to happen now, and if it does it could be at half that, or less.
- zmanji 15y agoHow were their initial steps legal? How can a company file for an IPO with such bullshit metrics?
- r0fl 15y agoYou 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.
- cowkingdeluxe 15y agoIt'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.
- Toddward 15y agoWhat 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.
- portman 15y agoCounting 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.
- physcab 15y agoI'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.
- gojomo 15y agoYou'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.
- wisty 15y agoI 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.
- jcampbell1 15y agoNot 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.
- _delirium 15y agoOn 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.
- gojomo 15y agoThis miscalculation of revenue was one of the major issues highlighted by these two business/accounting professors: http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/281 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.
- sk_0919 15y ago
- mikeryan 15y agoHow 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?
- pbreit 15y agoFor masterfully building the fastest growing company in the history of business?
- arctangent 15y agoI really don't know how some of these people aren't in jail already. It's as if everyone forgot that Enron happened.
- deleted 15y ago[deleted]
- InclinedPlane 15y agoCan 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?
- joebadmo 15y agoI 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.
- InclinedPlane 15y agoIf 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.
- portman 15y agoNo, 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/1490281/000104746911005613/a2203913zs-1.htm#dm79801_selected_consolidated_financial_and_other_data http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
- brandong 15y agoIIRC, in Groupon definition, customer acquisition is money spent on the sales teams.
- shadow_s 15y agoAdvertising takes up a lot of it.
- georgemcbay 15y ago"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.
- krobertson 15y agoIt is kind of entertaining watching Groupon slowly implode...
- codecaine 15y agoI guess Groupons collapse would actually make a pretty neat movie
- krobertson 15y agoSomeone should get Aaron Sorkin on that
- jayfuerstenberg 15y agoWish they'd get it over with quick to be honest. A lot of honest people are still getting screwed over by Groupon.
- deleted 15y ago[deleted]
- danilocampos 15y ago"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?
- jcdavis 15y agoHonest 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)
- philwelch 15y agoYes, 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.
- wanorris 15y agoIf 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?
- jcampbell1 15y agoIt 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.
- jprobert 15y agoIt'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.
- RexRollman 15y agoThis IPO is looking more and more like a scam.
- Hyena 15y agoWasn'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?
- nateberkopec 15y agoMmmm...claim chowder. The best part: COO exiting pre-IPO? Are they even trying anymore?
- blantonl 15y agoA past discussion that seems to be playing out: http://news.ycombinator.com/item?id=2980323 http://news.ycombinator.com/item?id=2980323
- dreamdu5t 15y agoDidn't we all see this coming for a long time?
- 8ig8 15y agoHas Jason Fried added anything to this discussion after announcing he left the board? I'd be interested in his take as a past insider.
- grandalf 15y agoAll 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).
- jonknee 15y ago> 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.
- brown9-2 15y agoMark-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?
- marcamillion 15y agoDefinitely the beginning of the end...if there was ever one.
- jeffwhelpley 15y agoMan, Groupon really messed things up. They have a large group of devoted fans and they just got too greedy and stupid with the way they handled this IPO. They should have done the IPO a yeah ago without any shananagins and they would have been better off.
- djiddish98 15y agoOT - 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.
- mkramlich 15y agothe technical MBA term for this is "oops!"
- tlogan 15y agoI don't know. As far as I know, Priceline (PCLN) is doing the same thing. Are they going to push PCLN do the same?
- pbreit 15y agoThere 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.
- sunchild 15y agoRemember 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.
- callmeed 15y agoIs there any possibility that current/past investors in Groupon sue the company because they invested based on bad financials?
- SurfScore 15y agoI'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.
- lunaru 15y agoYou mean like a Bank CD? What you've described isn't that crazy.
- vacanti 15y agoHeadline 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.
- ewams 15y agoThe article states that "a source" claims she was not treated how a normal person at that level should be.
- itswindy 15y agoI smelled a rat, especially when they started to open offices in places like Bulgaria just for the hype.
- linuxhansl 15y agoI still cannot believe that Google was willing to $6bn! The non-scaling nature of GroupOn always seemed obvious to me.