Groupon Goes Public: Communication Strategy and Challenges

Abstract

Three-year old daily deals company Groupon filed for an IPO on June 2, 2011 seeking a valuation of $20 billion. However, the offbeat, local e-commerce firm has come under intense media and investor scrutiny during the IPO process over its business model, financial viability, and accounting practices. After postponing its IPO amidst market uncertainty, Groupon must work to restore credibility with the investor community.

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Resources

Appendix A: Letter from Andrew Mason to potential stockholders on the Form S-1 1

Dear Potential Stockholders,

On the day of this writing, Groupon’s over 9,600 employees offered more than 1,000 daily deals to 115 million subscribers across 45 countries and have sold to date over 90 million Groupons. Reaching this scale in about three years required a great deal of operating flexibility, dating back to Groupon’s founding.

Before Groupon, there was The Point—a website launched in November 2007 after my former employer and one of my co-founders, Eric Lefkofsky, asked me to leave graduate school so we could start a business. The Point is a social action platform that lets anyone organize a campaign asking others to give money or take action as a group, but only once a “tipping point” of people agree to participate.

I started The Point to empower the little guy and solve the world’s unsolvable problems. A year later, I started Groupon to get Eric to stop bugging me to find a business model. Groupon, which started as a side project in October 2008, applied The Point’s technology to group buying. By January 2009, its popularity soaring, we had fully shifted our attention to Groupon.

I’m writing this letter to provide some insight into how we run Groupon. While we’re looking forward to being a public company, we intend to continue operating according to the long-term focused principles that have gotten us to this point. These include:

We aggressively invest in growth.

We spend a lot of money acquiring new subscribers because we can measure the return and believe in the long-term value of the marketplace we’re creating. When we see opportunities to invest in long-term growth expect that we will pursue them regardless of the short-term impact on our profitability.

We are always reinventing ourselves.

In our early days, each Groupon market featured only one deal per day. The model was built around our limitations: We had a tiny community of customers and merchants.

As we grew, we ran into the opposite problem. Overwhelming demand from merchants, with nine-month waiting lists in some markets, left merchant demand unfilled and contributed to hundreds of Groupon clones springing up around the world. And as our customer base grew larger, our merchants had an entirely new problem: Dealing with too many customers instead of too few.

To adapt, we increased our investment in technology and released deal targeting, enabling us to feature different deals for different subscribers in the same market based on their personal preferences. In addition to providing a more relevant customer experience, this helped us to manage the flow of customers and opened the Groupon marketplace to more merchants, in turn increasing the number and variety of deals offered through our marketplace.

Today, we are pursuing models of reinvention that would not be possible without the critical mass of customers and merchants we have achieved. Groupon NOW, for example, allows customers to pull deals on demand for immediate redemption, and helps keep merchants bustling throughout the day.

Expect us to make ambitious bets in technology and product innovation that distract us from our current business. Some bets we’ll get right, and others we’ll get wrong, but we think it’s the only way to continuously build exciting products.

We are unusual and we like it that way.

We want the time people spend with Groupon to be memorable. Life is too short to be a boring company. Whether it’s with a deal for something unusual, such as fire dancing classes, or a marketing campaign such as Grouspawn 2 , we seek to create experiences for our customers that make today different enough from yesterday to justify getting out of bed. While weighted toward the measurable, our decision-making process also considers what we feel in our gut to be great for our customers and merchants, even if it can’t be quantified immediately.

Our customers and merchants are what we care about.

After selling out on our original mission of saving the world to start hawking coupons, in order to live with ourselves, we vowed to make Groupon a service that people love using. We set out to upturn the stigmas created by traditional discounting services, trusting that nothing would be as crucial to our long-term success as happy customers and merchants. We put our phone number on our printed Groupons and built a huge customer service operation, manned in part with members of Chicago’s improv community. We developed a sophisticated, multistage process to pick deals from high quality merchants with vigorously fact-checked editorial content. We built a dedicated merchant services team that works with our merchant partners to ensure satisfaction. And we have a completely open return policy, giving customers a refund if they ever feel like Groupon let them down. We do these things to make our customers and merchants happy, believing that market success will follow.

We believe that when once-great companies fall, they don’t lose to competitors, they lose to themselves—and that happens when they stop focusing on making people happy. As such, we do not intend to be reactive to competitors. We will watch them, but we won’t distract ourselves with decisions that aren’t designed primarily to make our customers and merchants happy.

We don’t measure ourselves in conventional ways.

There are three main financial metrics that we track internally.

First, we track revenue—our gross billings less the amounts we pay our merchants—because we believe it is the best proxy for the value we’re creating. Second, we measure free cash flow, which is our cash flow from operations, reduced by our capital expenditures. We use this measure as an indicator of our long-term financial stability.

Third, we track Adjusted Consolidated Segment Operating Income (ACSOI) which is our Consolidated Segment Operating Income (CSOI) reported under U.S. GAAP before our new subscriber acquisition costs. We exclude those costs because, unlike our other marketing expenses, they are an up-front investment to acquire new subscribers that we expect to decline significantly as this period of rapid expansion in our subscriber base concludes and we determine that the returns on such investment are no longer attractive. 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.

If you’re thinking about investing, hopefully it’s because, like me, you believe that Groupon is better positioned than any company in history to reshape local commerce. The speed of our growth reflects the enormous opportunity before us to create a more efficient local marketplace. As with any business in a new industry, success for our investors is not guaranteed. We have yet to reach sustained profitability and we have no shortage of competition. Our path will include some moments of brilliance and others of sheer stupidity. Knowing that this will at times be a bumpy ride, we thank you for considering joining us.

[Andrew D. Mason]

Appendix B: Splitting of proceeds between Groupon and merchants 3

Figure

Appendix C: Median Age of Firms Going Public (1980-2010; long-term avg. = 8 years) 4

Figure

Appendix D: Comparison of Executive Biographies (Groupon website vs. public filings)

Andrew Mason (CEO & Co-Founder)
Groupon Website

“Andrew Mason is the founder of Groupon as well as The Point, the collective action platform from which Groupon was born. Andrew’s mostly unremarkable existence began in Pittsburgh, PA; he moved to Chicago in 1999 to attend Northwestern University, where he lives today with his girlfriend and over 20 cats. Andrew graduated with a degree in music, the uselessness of which served as a chief inspiration to not be useless. Out of college, Andrew became a software developer by no ambition of his own, but via a series of acquaintances offering to give him money to do incrementally harder stuff on computers. Excited by the power of technology to change the world, Andrew developed Policy Tree, a policy debate visualization tool, and won a scholarship to attend the University of Chicago Harris School of Public Policy in 2006. In school for only 3 months, the flighty Andrew dropped out after receiving an unexpected offer to fund the idea that would become The Point. The Point, a ground-breaking approach to online collective action and fundraising, launched in November 2007. One year later, Andrew founded Groupon, leveraging the collective buying technology of The Point to make it easier (and cheaper) to experience all the great stuff in Chicago. At various points in his life, Andrew has also started businesses to deliver bagels as if they were newspapers, and sell muffins with cranberries that he found in his backyard to people living on his street. When he isn’t working, Andrew spends most of his time writing his life coach training book, Unleash the Power Within the Power Within: Self Help For Self Helpers.” 5

Form S-1

“Andrew D. Mason is a co-founder of the Company and has served as our Chief Executive Officer and a director since our inception. In 2007, Mr. Mason co-founded The Point, a web platform that enables users to promote collective action to support social, educational and civic causes, from which Groupon evolved. Prior to co-founding The Point, Mr. Mason worked as a computer programmer with InnerWorkings, Inc. (NASDAQ: INWK). Mr. Mason received his Bachelor of Arts from Northwestern University. Mr. Mason brings to our Board the perspective and experience as one of our founders and as Chief Executive Officer. Mr. Mason was elected to the Board pursuant to voting rights granted to holders of our common stock and preferred stock under our voting agreement, which will be terminated upon the closing of this offering.” 6

Jason Child (CFO)
Groupon Website

“The only businessician in a family of artists, Jason Child has run 14 marathons, each one a kinetic sculpture of physical art. With his wife and two children strapped to his back, Jason also has skied down Austria’s toughest mountain without slipping and falling into a coma even once. Before fighting off a midlife crisis and joining Groupon, Jason worked as CFO and VP of Finance for Amazon.com’s international division, and he has lived and worked in Munich, Tokyo, and Seattle. Jason enjoys traveling with his family, and one day hopes to complete a whirlwind tour of every Groupon country either for business purposes or with a juggling troupe composed of his cousins and father.” 7

Form S-1

Jason E. Child has served as our Chief Financial Officer since December 2010. From March 1999 through December 2010, Mr. Child held several positions with Amazon.com, Inc. (NASDAQ: AMZN), including Vice President of Finance, International from April 2007 to December 2010, Vice President of Finance, Asia from July 2006 to July 2007, Director of Finance, Amazon Germany from April 2004 to July 2006, Director of Investor Relations from April 2003 to April 2004, Director of Finance, Worldwide Application Software from November 2001 to April 2003, Director of Finance, Marketing and Business Development from November 2000 to November 2001 and Global Controller from October 1999 to November 2000. Prior to joining Amazon.com, Mr. Child spent more than seven years at Arthur Andersen where he was a C.P.A. and a consulting manager. Mr. Child received his Bachelor of Arts from the Foster School of Business at the University of Washington.” 8

Appendix E: Groupon Financials (as stated on initial Form S-1) 9

Year Ended December 31,

Three Months Ended March 31,

2008

2009

2010

2010

(unaudited)

2011

(unaudited)

(dollars in thousands, except share data)

Consolidated Statements of Operations Data:

Revenue

$94

$30,471

$713,365

$44,236

$644,728

Cost of revenue

89

19,542

433,411

24,251

374,728

Gross profit

5

10,929

279,954

19,985

270,000

Operating expenses:

Marketing

163

4,548

263,202

3,988

208,209

Selling, general and administrative

1,474

7,458

233,913

7,426

178,939

Acquisition-related

203,183

Total operating expenses

1,637

12,006

700,298

11,414

387,148

(Loss) income from operations

(1,632)

(1,077)

(420,344)

8,571

(117,148)

Interest and other income (expense), net

90

(16)

284

3

1,060

Equity-method investment activity, net of tax

(882)

(Loss) income before provision for income taxes

(1,542)

(1,093)

(420,060)

8,574

(116,970)

Provision (benefit) for income taxes

248

(6,674)

23

(3,079)

Net (loss) income

(1,542)

(1,341)

(413,386)

8,551

(113,891)

Less: Net loss attributable to non-controlling interests

23,746

11,223

Net (loss) income attributable to Groupon, Inc.

(1,542)

(1,341)

(389,640)

8,551

(102,668)

Dividends on preferred stock

(277)

(5,575)

(1,362)

(523)

Redemption of preferred stock in excess of carrying value

(52,893)

(34,327)

Adjustment of redeemable non-controlling interests to redemption value

(12,425)

(9,485)

Preferred stock distributions

(339)

Net (loss) income attributable to common stockholders

$(2,158)

$(6,916)

$(456,320)

$8,028

$(146,480)

Net (loss) income per share

Basic

$(0.01)

$(0.04)

$(2.66)

$0.03

$(0.95)

Diluted

$(0.01)

$(0.04)

$(2.66)

$0.03

$(0.95)

Weighted average number of shares outstanding

Basic

166.738.129

168.604.142

171.349.386

172,966,829

153.924.706

Diluted

166.738.129

168.604.142

171.349.386

245,962,571

153.924.706

Year Ended December 31,

Three Months Ended March 31,

2008

2009

2010

2010

2011

Key Operating Metrics:

Subscribers (1)

*

1,807,278

50,583,805

3,434,610

83,100,006

Cumulative customers (2)

*

375,099

9,031,807

874,017

15,803,995

Featured merchants (3)

*

2,695

66,289

2,903

56,781

Groupons sold (4)

*

1,248,792

30,296,070

1,760,398

28,094,743

* Not available

(1) Reflects the total number of subscribers on the last day of the applicable period.

(2) Reflects the total number of unique customers that have purchased Groupons from January 1, 2009 through the last day of the applicable period.

(3) Reflects the total number of merchants featured in the applicable period.

(4) Reflects the total number of Groupons sold in the applicable period.

Appendix F: Andrew Mason’s Email to Employees 10

Dear Groupon,

This weekend, I did a Google News search on our company—my first in a while. The first story that popped up was called The Fall of Groupon: Is the Daily Deals Site Running Out of Cash? I laughed when I read the headline (in the car by myself, weirdly). First—with this article, the degree to which we’re getting the shit kicked out of us in the press had finally crossed the threshold from “annoying” to “hilarious.” Second, I was struck by the irony—I had just finished a board meeting last Wednesday saying this to myself: I’ve never been more confident and excited about the future of our business.

I realize that this sounds like the kind of thing that CEOs say when they’re trying to pep people up. First of all—I’m all about not pepping people up. If you don’t believe me, just ask my fiancée, Jenny “why don’t you ever say anything nice about me” Gillespie. Want another example? Look at the magazine covers in our lobby, which are there to make you sad by reminding you of the impermanence of success.

I’m going to spend the rest of this email explaining why I’m so excited. You need some ammo to argue back against your blog-reading “friends” (silently argue in your mind, that is—you can’t actually say any of this yet), and I’ve been told that the “what have you ever done with your life that’s so great?” rebuttal isn’t working as well for you guys as it has for me.

While we’ve bitten our tongues and allowed insane accusations (like in the article above) to go unchallenged publicly, it’s important to me that you have the context necessary to brush this stuff off.

I’ll summarize my excitement with four points: 1) Growth in our core business is strong 2) Our investments in the future—businesses like Getaways & NOW—look great, 3) We are pulling away from competition, and 4) We’ve built a great team that I would pit against anyone. In other words, all the stuff that one would want to look good? It looks good.

Many of the long-term unknowns of our business are becoming known, and we like the answers. I will now elaborate in a level of financial detail that will give Jason Child a stomach ulcer.

1. Growth in the Core Business

Thanks to a tremendous effort by our sales team, August in the U.S. is shaping up to be a pivotal month. It appears that will revenues grow by about 12% over last month (which is a lot), while we cut our marketing expenses by 20% in the same period.

Beyond their obvious goodness, these numbers are important because they answer one of the main criticisms thrown at us in the past few months, relating to a metric we put in the S-1 called ACSOI (adjusted consolidated segment operating income) to help people understand how we think about marketing expenses. The reason everyone in the world seems to hate ACSOI is that it makes us look magically profitable by subtracting a bunch of our customer acquisition marketing costs from our expenses. The reason we didn’t realize everyone in the world would hate ACSOI (no, it’s not the same reason we didn’t realize everyone in the world would hate our Superbowl ad), is that we think it actually does a pretty good job at describing our marketing expenses in a steady state – we just didn’t realize there would be so many skeptics. I think it’s worth going deep on this one more time—brace yourself.

Our internal forecast shows two different types of marketing: what I’ll call “normal marketing”—which is NOT excluded from ACSOI—and “customer acquisition marketing,” which is. The way Groupon spends on marketing is unique in three ways:

  • We are currently spending more than just about any company ever on marketing—in Q2, we spent nearly 20% of our net revenue on marketing, while a typical company spends less than 5%. Why do we spend so much? The simple answer is “because it works.” But that’s only part of what makes our situation special.
  • Our marketing—at least the customer acquisition marketing that we remove from ACSOI—is designed to add people to our own long-term marketing channel—our daily email list. Once we have a customer’s email, we can continually market to them at no additional cost. Compare this to Johnson and Johnson, McDonald’s, or most other companies. If I’m a Johnson, and I’m trying to sell you a box of Band Aids, I have to keep spending money on commercials and magazine ads and stuff to remind you about how sweet Band Aids are, even after you’ve bought your first box. With Groupon, we just spend money one time to get you on our email list, and then every day we email you a reminder of the sweetness of our metaphorical Band Aid. There is no cost of reacquisition—that’s unusual (and we created ACSOI to point that out). If Johnson wanted to follow the Groupon strategy, he would have to start a free daily newspaper about bandages and then run Band Aid ads in it every day.
  • Eventually, we’ll ramp down marketing just as fast as we ramped it up, reducing the customer acquisition part of our marketing expenses (the piece that we remove in ACSOI) to nominal levels. We are spending a ton now because we’re acquiring as many subscribers as we can as quickly as we can. We aren’t paying attention to marketing budget (just marketing ROI) in the way a normal company would, because we know that even if we wanted to continue to spend at these levels, we would eventually run out of new subscribers to acquire. So our customer acquisition spend drops severely to reflect the fact that eventually we’ll run out of people we can add to our email list. We view this internally as a very large one-time expense and then our job forever after will be to continually convert these subscribers into customers and to make sure our customers keep buying from us. Ongoing, the normal marketing dollars we spend are not something we would remove from our internal calculation of ACSOI.

I tried my best to explain this simply, but it’s not lost on me that if you actually understood this, you probably had to read it three times. It’s not easy stuff. It’s much easier to assume that we’re goons. So people can be forgiven for being suspicious. In fact, feel a little bad about how downhearted the critics will be when we don’t turn out to be a Ponzi scheme—those are good impulses for journalists to have, and I hope our non-evil ways don’t destroy their spirits.

Anyway, there’s a reason that I just went on about ACSOI. One of the questions that skeptics ask is, “when you ramp down marketing, won’t revenues stop growing as well? Aren’t you just buying growth?” Over the past several months we’ve been consistently reducing our marketing spend and yet revenues are still increasing at a significant pace. In Q1 of this year, marketing represented 32.3% of our net revenues. By the end of Q2 it had fallen to 19.4%. And it has continued to fall over the past several months all because we’ve been investing in our own long-term marketing channel—our email list.

Internationally we see the same trends—marketing is down, but revenues are up—every country is either losing less or making more. Even in young markets like Korea, where we’re still making massive investments, we’re seeing unprecedented growth. We started building our Korean team this January, despite the presence of two competitors that were larger than any we’d previously battled from behind. Thanks to the brilliant execution of the Korean team, we are set to be the market leader within months. We’ve never had a country grow as fast as Korea!

What about our joint-venture with Tencent in China? Did you read the article that Gaopeng’s CEO has kidnapped the first born children of all our employees and is putting them to work building a laser beam he’ll use to slice the moon in half? It turns out that that one isn’t true either. China is definitely a different market, but every month we inch closer to profitability. As has been our strategy in launching other countries—Germany, France, and the UK, included—our China growth strategy was to hire quickly and manage out the bottom performers. So far, that strategy has improved our competitive position in China from #3,000 to #8. Will we one day reach the dominant status we enjoy in most (come on, Switzerland!) other countries? It’s too soon to tell, but there’s no question in my mind that we’re building a business that will be around for the long haul.

2. New Business Lines Are Booming

Travel and Product are enormous opportunities. After only a few months, they’re already making up 20% of revenue in some countries. We sold $2M worth of mattresses in the UK—in one day! Groupon Getaways will do $10M in its first calendar month—which you might think is awesome, but we’re actually disappointed with those results because we know how much better we’ll be doing soon.

While there’s still a ton of work to do, Groupon Now! continues to see weekly double digit growth. The model works and I believe it will play a major part in the future of our global business as more merchants and customers join the marketplace.

3. We Are Pulling Away From Competition

If there’s a question I’ve received from Groupon skeptics more than any other, it’s, “how will you fend off the competition—especially massive companies like Google and Facebook?” I could give a dozen reasons to bet on Groupon, but it’s impossible to predict the future or the actions of others. Well, now the sleeping giants have woken up—and the numbers are showing that what was proven true with literally thousands of other competitors is just as true with the incumbents of the Internet: it’s kind of hard to build a Groupon. And since anyone with an Internet connection can track the performance of our competitors, I can be more specific:

Google Offers is small and not growing. In the three markets where we compete, we are 450% of their size.

Yelp is small and not growing. In the 15 markets where we compete, our daily deals are 500% of their size.

Living Social’s U.S. local business is about 1/3rd our size in revenue (and smaller in GP) and has shrunk relative to us in the last several months. This, in part, appears to be driving them toward short-sighted tactics to buy revenue, like buying gift certificates from national retailers at full price and then paying out of their own pocket to give the appearance of a 50% off deal. Our marketing team has tested this tactic enough to know that it’s generally a bad idea, and not a profitable form of customer acquisition.

Facebook sales are harder to track, but are even less significant at present.

My point is not that our competitors will fail—some may actually develop sustainable businesses, or even grow—after all, local commerce is an enormous market. The real point is that our business is a lot harder to build than people realize and our scale creates competitive advantages that even the largest technology companies are having trouble penetrating. And with the launch of NOW, I suspect our competition will have an even harder time in light of the natural barriers to entry that are needed to build a real-time local deals marketplace.

4. Our Team

This is the fluffiest of the four points, but maybe the most important—we’ve built a global team of hungry entrepreneurial operators and seasoned executives that rivals any team I know of. Almost every day, I find myself in a scenario where I silently think, “I can’t believe I got this person to work for me—that failure of judgment is perhaps their single flaw.”

I point out the team because while today the business is strong and it appears we must endure success for a while longer (despite its impermanence), we will inevitably be challenged with issues we didn’t predict—and when that happens, the quality of our team will be a deciding factor in our ultimate long-term success.

Final Thoughts

I wrote this email because when I read some of the press this weekend, I realized a rational person could read this stuff and wrongly conclude that we’re in trouble. The irony is hopefully clear: We’ve never been stronger. And while we’ve refrained from defending ourselves publicly, you’ve continued to create our best defense, with every department innovating new practices that are taking our business to the next level. Thanks for staying tough, determined, and agile throughout this process. For now we must patiently and silently endure a bit more public criticism as we prepare to birth this IPO baby—a breed for which there are no epidurals. If there’s a silver lining, it’s that we’re almost on the other side, and the negativity leaves us well-positioned to exceed expectations with an IPO baby that, having seen the ultrasound, I can promise you is not one of those uglies.

I’ve been as candid as possible—hope this sheds some light on things. Reply with your questions if anything remains unclear. Amidst all this, I hope you remember what we’re doing here—we are making history together. I guess you don’t get to build something that reshapes the local commerce ecosystem without getting a few bruises. I’m so proud of the work we’re doing, and I feel extraordinarily lucky to work on what I think is the best thing that’s happened to small businesses since the telephone We’ve invented something that is catalyzing millions of dollars of local commerce every single day in 45 countries and fills the lives of millions of customers with unforgettable experiences—it’s pretty remarkable.

Looking forward to getting this behind us!

Andrew

P.S.: I almost forgot to address the nonsense about us running out of money in the article above. If you apply the same logic used in the article, you’d have concluded long ago that companies like Amazon and Wal-Mart were running out of cash too. Both have often had payables far in excess of their cash. Finance geeks call this a working capital deficit. It’s normal, manageable and a lot of folks actually believe it’s good thing and would kill to get paid from their customers long before they have to pay their suppliers. 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.

Appendix G: Groupon Financials (as restated on amended Form S-1) 11

Year Ended December 31,

Six Months Ended June 30,

2008

2009

2010

2010

2011

(Restated) (1)

(Restated) (1)

(Restated) (1)

(Restated) (1)

(unaudited)

(Restated) (1)

(unaudited)

(dollars in thousands, except share data)

Consolidated Statements of Operations Data:

Revenue (gross billings of $94, $34,082, $745,348, $135,807 and $1,597,423, respectively) $

$5

$14,540

$312,941

$58,938

$688,105

Costs and expenses:

Cost of revenue

6

4,355

32,494

4,024

66,522

Marketing

163

4,873

284,348

39,848

432,093

Selling, general and administrative

1,468

6,389

213,260

33,880

407,665

Acquisition-related

203,183

9,434

Total operating expenses

1,637

15,617

733,285

87,186

906,280

Loss from operations

(1,632)

(1,077)

(420,344)

(28,248)

(218,175)

Interest and other income (expense), net

90

(16)

284

(96)

1,539

Equity-method investment activity, net of tax

(8,763)

Loss before provision for income taxes

(1,542)

(1,093)

(420,060)

(28,344)

(225,399)

Provision (benefit) for income taxes

248

(6,674)

(905)

(1,732)

Net loss

(1,542)

(1,341)

(413,386)

(27,439)

(223,667)

Less: Net loss attributable to non-controlling interests

23,746

61

19,759

Net loss income attributable to Groupon, Inc.

(1,542)

(1,341)

(389,640)

(27,378)

(203,908)

Dividends on preferred stock

(277)

(5,575)

(1,362)

(1,046)

Redemption of preferred stock in excess of carrying value

(52,893)

(34,327)

Adjustment of redeemable non-controlling interests to redemption value

(12,425)

(15,651)

Preferred stock distributions

(339)

Net loss attributable to common stockholders

$(2,158)

$(6,916)

$(456,320)

$(28,424)

$(253,886)

Net loss per share

Basic

$(0.01)

$(0.04)

$(2.66)

$(0.17)

$(1.66)

Diluted

$(0.01)

$(0.04)

$(2.66)

$(0.17)

$(1.66)

Weighted average number of shares outstanding

Basic

166,738,129

168,604,142

171,349,386

169,048,421

152,813,014

Diluted

166,738,129

168,604,142

171,349,386

169,048,421

152,813,014

Other Financial Data:

Segment operating (loss) income:

North America

$(1,608 )

$(962)

$(10,437 )

$8,309

$(32,279)

International

(170,556 )

(23,047 )

(128,314)

CSOI (1)

$(1,608 )

$(962 )

$(180,993 )

$(14,738 )

$(160,593 )

(1) The Consolidated Financial Statements have been restated for the presentation of revenue on a net basis for all periods presented. See Note 2 to our Consolidated Financial Statements. In addition, the six month period ended June 30, 2011 has been restated to reduce selling, general and administrative expense to correct for an error. See Note 2 to our Condensed Consolidated Financial Statements.

(2) Consolidated segment operating (loss) income, or CSOI, is a non-GAAP financial measure. See “—Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures” for a reconciliation of this measure to the most applicable financial measure under U.S. GAAP. We do not allocate stock-based compensation and acquisition-related expenses to the segments. See Note 14 “Segment Information” of Notes to Consolidated Financial Statements and Note 15 “Segment Information” of Notes to Condensed Consolidated Financial Statements (Unaudited) for additional information.

Year Ended December 31,

Six Months Ended June 30,

2008

2009

2010

2010

2011

Operating Metrics:

Gross billings (1)

$94

$34,082

$745,348

$135,807

$1,597,423

Subscribers (2)

*

1,807,278

50,583,805

10,445,521

115,717,299

Cumulative customers (3)

*

375,099

9,031,807

2,379,611

23,072,600

Featured merchants (4)

*

2,695

66,289

12,468

135,247

Groupons sold (5)

*

1,248,792

30,296,070

5,822,856

60,620,482

Average revenue per subscriber (6)

*

$8.0

$11.9

$9.6

$8.3

Average cumulative Groupons sold per customer (7)

*

3.3

3.5

3.0

4.0

Average revenue per Groupon sold (8)

*

$11.6

$10.3

$10.1

$11.4

Cumulative repeat customers (9)

*

162,323

4,483,976

1,056,966

12,066,676

*Not available

(1) Reflects the gross amounts collected from customers for Groupons sold, excluding any applicable taxes and net of estimated refunds, in the applicable period.

(2) Reflects the total number of subscribers who had a Groupon account on the last day of the applicable period, less individuals who have unsubscribed. May include individual subscribers with multiple registrations because the information we collect from subscribers does not permit us to identify when a subscriber may have created multiple accounts, nor do we prevent subscribers from creating multiple accounts.

(3) Reflects the total number of unique customers who have purchased Groupons from January 1, 2009 through the end of the applicable period. May include individual customers with multiple registrations.

(4) Reflects the total number of merchants featured in the applicable period.

(5) Reflects the total number of Groupons sold in the applicable period.

(6) Reflects the average revenue generated per average number of subscribers in the applicable period.

(7) Reflects the average number of Groupons sold per cumulative repeat customer from January 1, 2009 through the end of the applicable period.

(8) Reflects the average revenue generated per Groupon sold in the applicable period.

(9) Reflects the total number of customers who have purchased more than one Groupon from January 1, 2009 through the end of the applicable period.

Appendix H: IPO Volume and Proceeds Raised in Q1 (2004-2001) 12

Figure

References

1. Groupon, Inc. “Amendment No. 3 to Form S-1 Registration […].” p. 33-34.

2. Grouspawn is a foundation we created that awards college scholarships to babies whose parents used a Groupon on their first date.

3. Groupon, Inc. “Form S-1 Registration […].” p. 7.

4. Ritter, Jay R. “Table 4: Median Age and Fraction of IPOs with VC and Buyout Backing, 1980-2010.” University of Florida. May 18, 2011. http://bear.warrington.ufl.edu/ritter/IPOs2010age052011.pdf

5. Groupon, Inc. Groupon – Senior Management. http://www.groupon.com/pages/management (accessed October 3, 2011).

6. Groupon, Inc. “Amendment No. 3 to Form S-1 Registration […].” p. 93.

7. Groupon, Inc. Groupon – Senior Management. http://www.groupon.com/pages/management

8. Groupon, Inc. “Amendment No. 3 to Form S-1 Registration […].” p. 93.

9. Groupon, Inc. “Form S-1 Registration […].” p. 7-8.

10. Swisher, Kara. “Exclusive: Groupon’s Mason Tells Troops in Feisty Internal Memo: “It Looks Good”.” AllThingsD.com. August 25, 2011. http://allthingsd.com/20110825/exclusive-groupons-mason-tells-troops-in-feisty-internal-memo-it-looks-good/

11. Groupon, Inc. “Form S-1 Registration […].” p. 7-8

12. “First Quarter 2011 U.S. IPO proceeds skyrocket 194% driven by billion dollar deals and financial sponsor-backed IPOs, according to PwC,” PricewaterhouseCoopers, LLC. Roadmap for an IPO: A guide to going public, 2010. http://www.pwc.com/us/en/press-releases/2011/2011-us-ipo-proceeds.jhtml

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

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