March 4, 2021

DealBook: Groupon Drops Criticized Yardstick, but Shows More Growth

Andrew Mason, the chief executive of GrouponSeongjoon Cho/Bloomberg NewsAndrew Mason, the chief executive of Groupon.

Groupon has dropped a much-criticized accounting metric after pushback from the Securities and Exchange Commission, according to an amended prospectus filed on Wednesday.

But the online coupon giant also showed that it had maintained growth, with both its revenue and subscriber base having jumped in just a matter of months.

With its latest disclosure, Groupon is seeking to keep investor interest high for its forthcoming offering, which could come as soon as next month even amid the recent volatility in the stock market. The company is one of the darlings of the latest round of Internet companies, alongside the likes of Facebook and LinkedIn.

But Groupon has faced pressure to show it can maintain its astronomic growth in the face of a rapidly multiplying field of competitors. Beyond other deal sites like LivingSocial — itself seeking to go public — other rivals now include Google and Amazon.

In its new filing, Groupon removed references to “adjusted consolidated segment operating income,” or ACSOI, an unusual measure of the company’s business performance.

Groupon said that the measure — which subtracted its formidable online marketing and acquisition costs from its operating performance — was an important yardstick the company used. (ACSOI was not meant to be used as a valuation measure, Groupon cautioned.)

But critics said that it obscured the company’s losses and ignored a likely need to keep spending on marketing. On a generally accepted accounting principles basis, Groupon reported a $108.9 million net loss attributable to common shareholders for the second quarter, down 26 percent from the first quarter.

After discussions with the S.E.C. in recent weeks, Groupon decided to remove references to ACSOI from its latest prospectus, though it intends to continue using the metric internally, people briefed on the matter told DealBook.

“While we track this management metric internally to gauge our performance, we encourage you to base your investment decision on whatever metrics make you comfortable,” Andrew Mason, Groupon’s chief executive, said in a letter to investors in the prospectus.

In its place, the company substituted CSOI, a slightly less esoteric yardstick that is used by the likes of Amazon and which includes marketing costs. On this basis, Groupon lost $62.3 million for the second quarter this year.

By other measures, however, Groupon showed strong growth. It reported $878 million in net revenue for the second quarter, a 36 percent jump over the first quarter and a 906 percent leap over the same time last year.

Still, the latest filing shows that the company isn’t sustaining the astronomic growth that more than doubled its quarterly revenue several times last year.

Groupon also reported 115.7 million subscribers during that same time period, up 39 percent from the first quarter and 10 times more than a year ago.

One of Groupon’s biggest challenges has been proving that it can convert subscribers to its daily listings into paying consumers. The company reported 23.1 million customers for the quarter, who cumulatively purchased 32.5 million deals, a major improvement from the first quarter.

On average, Groupon now sells about four deals per customer, up from 3.8 in the first quarter.

Groupon also began trimming its formidable marketing budget, something it said would happen as more people became aware of the company. It spent 8 percent less on online marketing, or $165.2 million.

At the same time, it has been adding more employees to its sales force. The company reported having more than 4,800 sales representatives in the second quarter, up from more than 3,500 in the first quarter.

Groupon’s gross profit margins shrank from the first quarter, to 38.8 percent from 41.9 percent. The company attributed that to expansion in Asia and in national deals in North America, two areas that yield less profit but help lock in new subscribers.

Its foray into travel deals, Groupon Getaways, also fetches smaller margins, though it draws in more revenue per deal.

Another measurement that Groupon has promoted to investors, free cash flow, showed improvement: at $29.8 million for the second quarter, the company more than quadrupled what it generated earlier in the year.

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