SEC Scrutiny May Delay Groupon IPO

By Chuck Sudo in News on Jul 28, 2011 2:00PM

Groupon's upcoming IPO has been the subject of some pretty intense scrutiny from financial analysts ever since the prospectus filed with the SEC raised questions about the company's losses and how Groupon is valuating their own company.

Groupon CEO Andrew Mason told investors, “We don’t measure ourselves in conventional ways." And that has attracted the attention of the SEC with the IPO looming. What SEC regulators are concerned about are those unconventional ways with which Mason said Groupon measures profitability: gross profits and consolidated segment operating income (CSOI).

Last year, Groupon's generated adjusted CSOI was $60.6 million. Since Groupon also reported a loss of $413 million last year, the SEC wants some clarification as to how Groupon came to its CSOI number. One way to look at it is to take a look at what Groupon doesn't report for CSOI - marketing costs and other expenses to expand its list of subscribers; stock issued to employees, acquisitions of other companies; interest expenses or other outlays to repay debt; tax payments.

Groupon filed an amended S-1 with their prospectus a couple of weeks back that offers a more detailed rationale for how it measures profitability, as opposed to the original letter which mentioned "CSOI" 45 times. It also toned down the company's importance on CSOI.