Non-Gaap Measures and Groupon
Due: Tuesday February 6
Groupon, Inc. (GRPN)
Groupon Inc., headquartered in Chicago, IL, is a ‘local commerce marketplace that connects merchants to consumers by offering goods and services at a discount’. Groupon began operations in 2008 as a private company and grew rapidly during the first few years. The Company filed its first Form S-1, the IPO prospectus, with the SEC on June 2, 2011 and successfully completed its IPO in early November 2011, selling 35 million shares at $20 per share to raise $700 million. The company’s stock price, however, drifted from above $30 on November 4, 2011, its first day of trading as a public company, to under $10 within one year. In June of 2020, the stock price has been hovering between $3 and $6 util they conducted an unusual reverse share split (1 for 20). In 2022 before the recent decline in the market Groupon’s share price was in the low 20’s, currently it trades at approximately $13.50 per share.
Groupon has faced are some accounting woes that arose right after it first filed Form S-1. On June 29, 2011, the SEC sent a comment letter to Groupon that presented a number of issues and inquiries about the Groupon S-1 filed on June 2, 2011. Groupon responded to the comments on July 14, 2011. If you are curious about the full exchange between SEC and Groupon, files can be located on EDGAR using filing type ‘UPLOAD’ (SEC letters) and ‘CORRESP’ (Company responses).
Required:
Obtain and read/review the following materials:
- Readings on Non-GAAP earnings (under Assessments on Blackboard)
- Form S-1 filed by Groupon on June 2, 2011 (on SEC EDGAR website)
- Amended Form S-1 (S-1/A) filed by Groupon on November 1, 2011 (on SEC EDGAR website)
- The SEC’s letter to Groupon dated June 29, 2011 (under Assessments on Blackboard)
- Groupon’s response to the SEC dated July 14, 2011 (under Assessments on Blackboard)
- Groupon Q3 2023 Earnings Announcement on Nov 9, 2023 (under Assessments on Blackboard)
Address the questions below – be sure to address each part of the questions. In your responses please be sure to answer each of the questions (and sub questions, asked below). You are encouraged to use the writing tips given in the “Being Clear and Concise” section of “Memo Guidelines Updated.pdf” document found in the Syllabus and Policies Section of Blackboard.
Your memo should include the following Honor Code Statement:
“I pledge my honor that I have not violated the Honor Code during this assignment. I recognize that this is an individual assignment and that I have turned in my own effort even if I have discussed the assignment or worked in a group setting in preparing this assignment.”
Questions to address in this assignment:
- Groupon and non-GAAP measures in 2011:
- What is ACSOI? How does Groupon define it? Why do you think Groupon chose to use this measure to supplement its GAAP earnings information in its S-1?
- Why did the SEC question the inclusion of ACSOI in Groupon’s S-1? In your answer, discuss both the SEC’s view and reaction to the expanded use of non-GAAP measures by companies in general and their specific concerns about Groupon’s ACSOI measure.
- Do you agree with Groupon’s argument that discretionary expenses, such as subscription acquisition costs, should be excluded from the financial measures of a company’s performance?
- In general, what are some potential advantages and disadvantages of disclosing non-GAAP earnings? Do you feel that these measures can be informative to investors? Why or why not?
- Groupon and non-GAAP measures in 2023:
- Groupon and Revenue Presentation:
- Compare the reported revenues, for fiscal years 2008, 2009, and 2010, in the original S-1 (June 2, 2011) and in the amended S-1 (November 1, 2011). What was the cause the changes? Did the changes have a material effect on reported revenues, cost of revenue and gross margin? Show calculations to support your conclusion on materiality.
- Which of the two approaches do you think Groupon preferred? Why did they prefer it? Do you agree with Groupon or the SEC on this matter? Briefly explain.
In its original S-1 filing on June 2, 2011, Groupon presented a non-GAAP measure called ACSOI. It was later removed in an amended S-1/A after the SEC objected.
Unlike GAAP numbers, companies may adapt their usage of non-GAAP numbers and other supporting disclosures over time and even from year to year.
- Using Groupon’s Q3 earnings press release dated November 9, 2023, describe the two non-GAAP measures related to earnings that Groupon highlights on the second page.
- What were Groupon’s Billings and Revenues for the period, which measure would be more relevant to you as an investor in Groupon?
- Groupon discusses their non-GAAP measures in detail on towards the top of Page 4 of the earnings release and presents the required reconciliations of GAAP to non-GAAP measures on page 15 and 16. Focusing on Q3 2023 column on page 15, list 3 of the larger non-GAAP adjustment line items in the non-GAAP reconciliation of reported (i.e., GAAP) net income to non-GAAP net income over the two years. For each item you highlight, comment on why Groupon might adjust net income for the item and whether and why you think each adjustment might provide valuable information for investors.
One of the key comments from the SEC in its June 29, 2011 letter to Groupon involved Groupon’s choice between gross and net reporting for revenues.
