GROUPON AND THE SEC1
Vaughan Radcliffe, Mitch Stein and Alexis Gottschalk wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; email firstname.lastname@example.org. Copyright © 2012, Richard Ivey School of Business Foundation Version:
Lesley Simmonds kept seeing Groupon appear in the news with reference to its accounting practices. As a prospective MBA student, she wondered what all of the fuss was about and why these numbers were under such scrutiny. Working as an operations consultant, she understood that financial numbers were very important to understanding business operations, but she was also aware that there were well-defined practices for financial reporting. Considering the regulatory agencies and governing bodies that oversee the accounting profession globally, she wondered if this was all simply a case of media hype. During a break at work, Lesley perused the Groupon website for its daily deals. Keen to learn more about the business and to stay current for potential interviews for MBA programs, she decided to do some research into Groupon’s operations and the current news surrounding its financial statements. If the accounting issue at hand was no more than just hyperbole, then why was there still so much press on Groupon’s financials? ABOUT GROUPON
Groupon was launched privately in 2008 and began by providing daily offers from retailers to local customers to allow them access to the power of group buying (i.e., discounts). As the corporation’s website states, “Groupon negotiates huge discounts — usually 50–90% off — with popular businesses. We send the deals to thousands of subscribers in our free daily email, and we send the businesses a ton of new customers. That's the Groupon magic.”2 Currently operating in 43 countries and in numerous cities, Groupon had recently expanded its offerings from daily deals to include Groupon Now!, Groupon Getaway and Groupon Product. Groupon Now! showcased local deals only available for a few hours; Groupon Getaway deals were for travel and were offered in partnership with Expedia; Groupon Goods provided discounts on products. 1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Groupon or any of its employees. 2 Retrieved from Groupon website, http://www.groupon.com/learn, accessed on October 8, 2011.
To make a purchase, a customer paid Groupon to use its website or various applications. Only after a predetermined number of Groupons had been bought did the deal become green-lit and Groupons were issued. At a later time, Groupon remitted payment to the retailer after retaining a commission fee. THE SPOTLIGHT ON GROUPON’S FINANCIALS: THE IPO FILING
Groupon released its first public set of financial statements as part of an SEC filing (S-1) required prior to an IPO (see Exhibit 1). As part of the filing, non-GAAP financial measures were shown and included cash flow and Adjusted Consolidated Segmented Operating Income (ACSOI). A non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that: excludes amounts, or is...