DealBook: Appeasing Critics, Groupon Revises I.P.O. Disclosure

Tim Boyle/Bloomberg NewsGroupon headquarters in Chicago.

Groupon continued to respond to criticism over its financial disclosures on Friday, once again amending the regulatory filing for its highly anticipated public offering.

In the new disclosure, the daily deals site adjusted its reporting metrics and clarified certain financial indicators. The company noted that so-called gross billings — the total amount it collects from consumers before it pays vendors — is an important because “it measures the dollar volume of transactions” and helps the company to track its margins.

However, the company acknowledged, it is not a replacement for “revenues or any other financial metric presented in our consolidated financial statements.” It also revised its gross billings for the second quarter to $929.9 million in the second quarter, a $20 million increase from its previous filing.

Groupon seems to be appeasing regulators and critics, who have come down on the site for previously logging “gross billings” as revenue. Last month, the company issued a filing that largely addressed this concern, by introducing a metric called “net revenues,” which excluded the amount paid to retailers.

Unlike traditional online retailers, Groupon shares a large portion of its sales, 50 percent or more, with the retailers who offer coupons on its site. Thus, the accounting change greatly affected Groupon’s results, by forcing the company to highlight net revenue in its financials. For example, Groupon had previously recorded $1.6 billion in revenue for the first half of 2011. Under the accounting rules introduced in September, that figure is now gross billings, while net revenue was substantially lower, at $688 million. Friday’s filing represents the third time Groupon has had to tweak its prospectus for accounting issues.

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Notably, Friday’s filing also featured a fuller version of the e-mail sent by chief executive Andrew Mason to employees, which was leaked to the press in late August. Several analysts have wondered whether the letter, which discussed Groupon’s financial performance, violated Securities and Exchange Commission’s rules for companies seeking to go public. Groupon, which disclosed select portions of the letter in September, also added additional paragraphs in Friday’s filing to give investors further clarification. For example, Groupon notes:

The email discusses that we expect that our subscriber acquisition costs will decline in the future. However, we cannot assure you that such reductions will not have an adverse impact on our revenue or the extent to which increases in other marketing expenses may offset the impact of such reductions.

The email discusses our joint venture with Tencent in China and indicates that we are making progress towards profitability. However, there is no assurance as to when, or if, the joint venture will achieve profitability. For the foreseeable future, we do not expect that the joint venture will have a material impact on our results of operations.

Elsewhere in the filing, Groupon also noted that five years after its I.P.O., its two classes of stock would convert into one class, whose shares count for one vote each. The move appears to address concerns about the company’s dual-class structure. Groupon currently plans to sell only Class A shares to the public, which carry one vote each. Class B shares, which will be held only by Groupon’s three co-founders, will have much more voting power.

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