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Groupon's SEC Troubles

GROUPON'S SEC TROUBLES Groupon may be the largest provider of daily deals online, but the company has also faced a great number of financial problems and controversies in its short history. Recently, the company has faced another setback, which may result in a formal investigation by the Securities and Exchange Commission. Learn more: GROUPON'S FINANCIAL HISTORY 2007 2008 2009 2010 2011 $1 million $950 million $16.2 billion $4.8 million raised in $30 million $135 million raised in raised in venture capital raised in raised in raised in venture venture venture venture venture capital capital capital capital capital GROUPON'S TIMELINE OF FINANCIAL EVENTS JUNE 2011 AUGUST 2011 SEPTEMBER 2011 Groupon files Groupon amends its IPO filing after it is revealed that the company uses a controversial accounting method for operating income. Groupon restates its 2010 results. Revenue drops from $713.4 million to $312.9 million once the fees paid to merchants are deducted. for an IPO. Groupon goes public; raises $805 million. Stock prices plunge as Shares fall when reports reveal that Shares plunge 17%. Reports Groupon reports a fourth-quarter loss of $37 million in its first earnings Groupon's Groupon announces that chief accounting some worry about the it is revising its fourth quarter results after state that the SEC is merchants are officer reveals pulling back from offering that many customers had company's accounting practices and its competition. examining Groupon's discovering executives did not set aside daily deals. report. returned their revised version coupons in of its first set of January. enough money for refunds. financial results as a public company. NOVEMBER DECEMBER JANUARY FEBRUARY MARCH APRIL 2011 2011 2012 2012 2012 2012 Groupon has faced more than just financial controversies in the past. Other 2 CONTROVERSIAL HISTORY issues have included: FEBRUARY 2011 MARCH 2011 06 Groupon pulls its controversial Super Bowl XLV A lawsuit is filed against Groupon, which claims that the company's coupons' expiration dates are deceptive and illegal. advertisement after critics claim the company joked about the oppression in Tibet to sell the company's services. MARCH 2011 APRIL 2011 The Massachusetts Alcohol Beverage Control Board announces that Groupon violates the state's laws on Groupon pulls its ads from Donald Trump's "The Apprentice" website in an attempt to distance the company from the "political criticism" of Trump's potential presidential plans. discounting booze. WHAT'S THE PROBLEM? The main issue is how Groupon reports its earnings and how the company accounts for refunds. Felix Salmon of Reuters explains an example: 3 %24 06 o000000000000 COOL SCULPTING Groupon sells 240 coupons for cool sculpting. Each coupon is sold at $500 apiece for a total of $120,000. The coupons expire in six months. Groupon keeps 50% of the proceeds. Groupon gives the other 50% to the merchant. In this case, the doctor gets $60,000. However, the doctor doesn't get all of the money up front. GROUPON Some people (for example 20) may not be suitable for the procedure, so they're eligible for a refund. He gets $20,000 immediately. x20 In 30 days, he gets another $20,000. Groupon refunds $10,000 worth to ineligible people. After 60 days, he will receive the final $20,000, unless refunds are given out. If that's the case, Groupon's revenues are also $55,000 instead of $60,000. However, there can be more Groupon subtracts half of that amount from his final financial problems after the merchant is paid, which can impact Groupon: As a result, the payment. doctor's final x50 payment isn't $20,000, but $15,000, for a total of $55,00. Perhaps an additional 50 people are told that they're not suitable for the surgery. Since the doctor has already been paid, he doesn't need to repay the money. However, the Groupon Promise means that Groupon will refund the money, which comes out of the company's revenues. So the total cost of refunds for those 50 people, $25,000 comes out of Groupon's $55,000. So Groupon makes only $30,000. Groupon's recent announcement reflected this; the company lost more money on deals than it expected to in 2011. ACCRUED EXPENSES AS OF DECEMBER 31: 2010 2011 MARKETING $ 48,244 $ 33,472 The company's problem then is when they should report a deal's revenue and for how much -- should it report $60,000 in revenue once the deal is bought by consumers, or should they wait 6 months to post the total once refunds have been given out? REFUNDS RESERVE 13,938 67,452 PAYROLL AND BENEFITS 12,187 36,404 SUBSCRIBER REWARDS AND CREDITS 8.333 36,144 PROFESSIONAL FEES 2,341 18,656 OTHER 13,280 19,879 $ 98,323 $ 212,007 WHAT CAN OTHERS LEARN FROM GROUPON'S EXPERIENCE? The JOBS Act, which President Obama signed into law on April 5, 2012, includes a provision that allows companies to resolve issues with the SEC over their accounting before going public. This means they can iron out any issues before offering their IPO, which may have helped Groupon. SOURCES: | | | | | | | | | | | | | Information provided by: BACKGROUND CHEC.K A CLOSER LOOK %24 %24 %24 %24 |%24 %24

Groupon's SEC Troubles

shared by Ariela on May 07
Groupon may be the largest provider of daily deals online, but the company has also faced a great number of financial problems and controversies in its short history.


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