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Groupon Loses COO, Drastically Cuts Reported Revenue

Soulskill posted more than 3 years ago | from the how-not-to-prepare-for-an-ipo dept.

Businesses 131

itwbennett writes "Groupon COO Margo Georgiadis has quit after just 5 months on the job and is returning to Google to be the company's president for the Americas. Groupon's founder, Andrew Mason, wrote in a blog post that the company has undergone a reorganization with Georgiadis' departure, and now sales, channels, international and marketing will report directly to him. In other bad Groupon news, the company revealed in an SEC filing Friday that it was reporting revenue before it paid fees to merchants using Groupon. 'The effect of the correction resulted in a reduction of previously reported revenues and corresponding reductions in cost of revenue in those periods,' according to the filing."

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Ethics? (1)

Nom du Keyboard (633989) | more than 3 years ago | (#37517804)

Could he find the business model and/or ethics of Groupon questionable?

Re:Ethics? (1)

raehl (609729) | more than 3 years ago | (#37517852)

She.

And apparently she just didn't get along with the other top-level execs.

Re:Ethics? (0)

Anonymous Coward | more than 3 years ago | (#37517934)

Also, WTF is a COO?

Re:Ethics? (2)

JordanL (886154) | more than 3 years ago | (#37517954)

Chief Operating/Operations Officer

Essentially, this position usually is the lead logistics position.

Re:Ethics? (0)

Anonymous Coward | more than 3 years ago | (#37519554)

"Chief Operating/Operations Officer"

So a Chief Operating Officer/Chief Operations Officer is COOCOO?

Re:Ethics? (0)

Anonymous Coward | more than 3 years ago | (#37517972)

Chief Operating Officer?

Re:Ethics? (4, Funny)

ilikejam (762039) | more than 3 years ago | (#37518776)

<scottish_accent>
10 coos in a field. Which one's closest to Iraq?
Coo 8.

10 coos in a field. Which one's on holiday?
The one with the wee calf.
</scottish_accent>

Re:Ethics? (1)

Sparckus (1158609) | more than 3 years ago | (#37519950)

lol

Re:Ethics? (1)

marcosdumay (620877) | more than 3 years ago | (#37518644)

So in other words, she did fing the methods or the ethics questionable.

Re:Ethics? (1)

Quirkz (1206400) | more than 3 years ago | (#37518962)

They call them fingers, but I never see them fing. Oh, wait, there they go ...

only in the same tradition of american capitalism (0)

Anonymous Coward | more than 3 years ago | (#37519066)

the man is only following the same paths of other successful CEOs; being a total sociopath and a lying son of a bitch.

Re:only in the same tradition of american capitali (0)

Anonymous Coward | more than 3 years ago | (#37523240)

What we need are noble, honest, poor people, who don't know how to do anything right, running the world.

So in other words... (4, Funny)

madprof (4723) | more than 3 years ago | (#37517816)

Groupon is going to find itself in serious trouble soon due to an unsustainable business model and will be folding within the next 12-18 months?

Re:So in other words... (0)

Anonymous Coward | more than 3 years ago | (#37517900)

Groupon is going to find itself in serious trouble soon due to an unsustainable business model and will be folding within the next 12-18 days?

There, fixed it for you :p

Half of $750 Million is Still Some Money ... (0)

eldavojohn (898314) | more than 3 years ago | (#37518018)

Groupon is going to find itself in serious trouble soon due to an unsustainable business model and will be folding within the next 12-18 months?

I guess that's only if you find them to be disingenuous enough not to chase their adjusted revenues of US$312.9 million with an investment. What the article seems to be ignoring is that Groupon is still turning a profit. While it's not insane, it's still money. Investors aren't stupid when it comes to money and they'll simply adjust their plans for the IPO. I wager they'll cut the IPO planning in half and then a little extra for misleading people. But come on, this is Wall Street! Is anyone completely honest in that business? Investors might even like the cut of that move.

I hate defending Groupon but I've been suckered by them once. I bought two tickets to a movie theater for 1/2 price only to realize the only theaters were in a different state and they then expired. Lame.

I think the article goes a little over the top on Groupon hate though:

Assuming that's true, how dysfunctional is a company when the CEO goes around the No. 2 person?

Are you kidding me? He's the CEO! Do you think every single call by him has to go through the COO? Isn't that the definition of overly heavy management?

Re:Half of $750 Million is Still Some Money ... (2)

dc29A (636871) | more than 3 years ago | (#37518066)

Investors aren't stupid when it comes to money

ORLY? [wikipedia.org]

Re:Half of $750 Million is Still Some Money ... (0)

ppanon (16583) | more than 3 years ago | (#37518364)

What's the location [wikipedia.org] of the first Paris international airport got to do with investors losing money?

Re:Half of $750 Million is Still Some Money ... (0)

Anonymous Coward | more than 3 years ago | (#37518598)

Orly is not really the first Paris international airport.

Re:Half of $750 Million is Still Some Money ... (0)

Anonymous Coward | more than 3 years ago | (#37519992)

That was primarily caused by fraud and/or incompetence on the part of the banks and ratings agencies, not investor stupidity.

Re:Half of $750 Million is Still Some Money ... (3, Informative)

maxume (22995) | more than 3 years ago | (#37518086)

Their "profit" in the first half of 2011 was a loss of $253 million...

http://www.sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#toc_ce79801_1 [sec.gov]

Re:Half of $750 Million is Still Some Money ... (4, Funny)

Anonymous Coward | more than 3 years ago | (#37518122)

But they made up for it in volume.

Re:Half of $750 Million is Still Some Money ... (0)

Anonymous Coward | more than 3 years ago | (#37518488)

AC for the win.

Re:Half of $750 Million is Still Some Money ... (1)

aix tom (902140) | more than 3 years ago | (#37519168)

That is actually the new business model for a lot of companies it seems.

1) Create business model that does not work but attracts a lot of customers
2) Go broke
3) Sell the customer base and/or customer data to another company.

Re:Half of $750 Million is Still Some Money ... (0)

Anonymous Coward | more than 3 years ago | (#37519600)

But they made up for it in volume.

So did they. [latimes.com] Obviously Obama will now recommend them to all investors and insist all Groupon jobs are permanent, creating the very fabric of the US' strategic economy, bringing us into tomorrow.

Re:Half of $750 Million is Still Some Money ... (4, Insightful)

suresk (816773) | more than 3 years ago | (#37518188)

If a net loss of over $100 million per quarter counts as "profit", then yes, Groupon is turning a profit.

Groupon is losing money, facing growing competition, and has a questionable business model. The restating of revenue is just icing on the cake. They should have taken the billions Google offered them when they had the chance.

Re:Half of $750 Million is Still Some Money ... (2)

quarterbuck (1268694) | more than 3 years ago | (#37518482)

If that was all - here is their filing below.
RESTATEMENT The Company has restated its previously issued Consolidated Statements of Operations for the years ended December 31, 2008, 2009 and 2010 to correct for an error in its presentation of revenue.
Most significantly, the Company restated its reporting of revenues from Groupons to be net of the amounts related to merchant fees. Historically, the Company has reported the gross amounts billed to its subscribers as revenue. All prior periods have been restated to show the net amount the Company retains after paying the merchant fees. The effect of the correction resulted in a reduction of previously reported revenues and corresponding reductions in cost of revenue in those periods. The change in presentation had no effect on pre-tax loss, net loss or any per share amounts for any period presented.
The Company has also changed the presentation of certain other income statement expenses to be consistent with reporting revenue on a net basis. These changes include presenting loyalty programs as a component of marketing rather than as an offset to revenue. The Company believes that this classification is most appropriate as it is acting as an agent on behalf of the merchant in driving traffic to generate revenue. In addition, refunds made to subscribers under the Groupon Promise are presented as a component of cost of revenue, rather than as an offset to revenue, as these amounts are not paid directly to the merchants.
Credit card and other processing expenses have been reclassified to cost of revenue from selling, general and administrative for all periods presented. The Company has concluded the amounts could alternatively be viewed as a cost of the service the Company is providing.

So not only did they change their revenue recognition policies, they also had an "error" which is separate. And then they had to restate revenues from their loyalty programs and credit card payments. What were they making up their accounts for two years? Crayons and Etch-a-Sketch?

Who cares? (1)

raehl (609729) | more than 3 years ago | (#37520722)

The net dollar amounts are the same. All they changed was whether an item was put in a category that reduced initial revenue, or increased a cost.

It's not like they said they had a smaller loss than they actually did.

Re:Half of $750 Million is Still Some Money ... (5, Interesting)

Raenex (947668) | more than 3 years ago | (#37518198)

I guess that's only if you find them to be disingenuous enough not to chase their adjusted revenues of US$312.9 million with an investment. What the article seems to be ignoring is that Groupon is still turning a profit.

But as an investor, why would you trust these guys to use your investment wisely?

Where Did Grouponâ(TM)s Billion Dollars Go? [allthingsd.com]

"Groupon raised a total of $946 million in two funding rounds last winter. It kept $136 million of it help run the money-losing company. The remaining $810 million was paid out, via stock purchases, to CEO Andrew Mason and some of his backers, including Eric Lefkofsky, and, notably, the Samwer brothers, who sold their CityDeal company to Groupon in 2010."

Do you want to be the sucker left holding the empty bag at the end?

Re:Half of $750 Million is Still Some Money ... (1)

Lunix Nutcase (1092239) | more than 3 years ago | (#37521178)

Investors aren't stupid when it comes to money and they'll simply adjust their plans for the IPO.

Then how do you explain the Dot Bomb bubble?

Re:So in other words... (4, Funny)

elrous0 (869638) | more than 3 years ago | (#37518142)

Nonsense! They used to say the same crap about Pets.com back in the day.

Re:So in other words... (1)

madprof (4723) | more than 3 years ago | (#37518398)

You are saying the business model of pets.com and Groupon are the same?

Re:So in other words... (1)

AliasMarlowe (1042386) | more than 3 years ago | (#37519460)

You are saying the business model of pets.com and Groupon are the same?

Other than the fact that pets.com [wikipedia.org] eventually had the honesty to admit it was utterly and completely bust, even after trying sock puppets [wikipedia.org] to delay the inevitable, yes.

Re:So in other words... (1)

madprof (4723) | more than 3 years ago | (#37519734)

Fair point.

Re:So in other words... (1)

ColdWetDog (752185) | more than 3 years ago | (#37519674)

I detect a breeze around here. I wonder why?

Re:So in other words... (1)

madprof (4723) | more than 3 years ago | (#37519748)

You need to close the window. :)

Re:So in other words... (1)

CraftyJack (1031736) | more than 3 years ago | (#37519918)

On a five year horizon, yes.

Re:So in other words... (4, Insightful)

inviolet (797804) | more than 3 years ago | (#37518150)

Groupon is going to find itself in serious trouble soon due to an unsustainable business model and will be folding within the next 12-18 months?

Indeed. Groupon is in the same position that its retailer-customers are in: hooked on a ponzi-esque cycle of always needing another round of groupon signups. Businesses issue a groupon when they need the cash up front, and then later they get hit with the lossy customers, and need to do another groupon. Groupon itself seems to be in a similar situation.

In fairnes to Groupon, it seems like financial markets haven't yet worked out the right way to do valuations of companies like Groupon. Groupon is trying to explain that they have great potential that isn't quantifiable using GAAP. Everybody is mocking them for it, but how are they supposed to look good according to rules that were drawn up for brick-and-mortar, inventory-and-shelving companies?

Actually the same problem is writ even larger on the whole financial world. Because there is no GAAP way to express the value of customer loyalty, employee loyalty, brand loyalty, and so forth, MBAs come in and squander those precious things in order to increase items that GAAP does know how to express. "Look, realized earnings are up 12% this quarter because we moved production to China and in two years our customers will all leave when they realize we make junk now, where's my bonus?"

Re:So in other words... (0)

Anonymous Coward | more than 3 years ago | (#37518522)

Businesses issue a groupon when they need the cash up front, and then later they get hit with the lossy customers, and need to do another groupon. Groupon itself seems to be in a similar situation.

This is incorrect. Groupon doesn't pay the business *any* of the money due to them until 30-60 days after the groupon is used. A business doing a Groupon deal must render service without any payment until then.

Re:So in other words... (0)

Anonymous Coward | more than 3 years ago | (#37519850)

Ok, but if the expiration date of the Groupon is 4 months in the future, it is likely the business will see revenue before supplying some of the service. (Particularly, if complaints that Groupon customers sometimes gang up on the business on the expiration date en masse, as I have heard, are to be believed.)

Re:So in other words... (1)

Kalriath (849904) | more than 3 years ago | (#37520542)

After the Groupon is USED, not sold. The coupon will always be presented prior to being paid out. And if accounts over the web are to be believed, sometimes Groupon does not pay out at all (i.e. they charge a 100% commission on some Groupons).

Re:So in other words... (2)

epine (68316) | more than 3 years ago | (#37518770)

Because there is no GAAP way to express the value of customer loyalty,

Dude, I wish you the best of luck. Loyalty is the hot ass you crave after wedding the invisible hand.

Corporations bent on cultivating the next quarterly earnings report don't hold much enduring appeal to informed consumers wishing to build relationship equity with non-human entities. Where does the loyalty come to rest in this system? With suckers, if you can find them?

The body beautiful [economist.com]

A reputation for morality and high ethical standards is normally built up over the course of a lifetime. But some big companies have found a quicker route--just buy it.

Are you planning to GAAP codify loyalty the commodity, or loyalty the sentiment? Watch your step, Groupon, there's a small crevice near you.

Re:So in other words... (1)

Rude Turnip (49495) | more than 3 years ago | (#37519036)

There are somewhat established ways to estimate the value of such intangibles under GAAP or IFRS. The issue here is that Groupon seems to be a volatile startup and the inputs for determining these values are fscked.

Re:So in other words... (1)

Incensed (923206) | more than 3 years ago | (#37519042)

Because there is no GAAP way to express the value of customer loyalty, employee loyalty, brand loyalty, and so forth,

Isn't this usually called "goodwill" in GAAP terms?

Re:So in other words... (1)

boxless (35756) | more than 3 years ago | (#37519448)

Not really, anymore. I think that's the old school definition.

Now it's more an indicator on a company's balance sheet of how much it has overpaid for something, or overvalued something. For example, if they have paid huge dot-com money for some new start up, but the financials of that start up are nowhere near the value the company paid for it, the difference must be put on the acquiring company's balance sheet as goodwill. Because balance sheets always have to net out to 0, when you pay more for something than it's worth, they have to put something in there to balance it out. Goodwill.

So, I've always looked at it as a negative.

Re:So in other words... (1)

farble1670 (803356) | more than 3 years ago | (#37521402)

if they aren't valuable in a traditional sense, then how? seems to me,

1. it's becoming generally known that businesses rarely make $ from their service.
2. there is no brand loyalty to groupon.
3. they can be easily duplicated / copied.

and finally,

4. unreliable profit stream. the businesses that seek their service do so because they need a quick cash influx. unfortunately, those are the same type of businesses that are likely to default on their debts. they are essentially in the business of making high-risk loans.

Re:So in other words... (0)

Anonymous Coward | more than 3 years ago | (#37521988)

You misunderstand the business model if you think Groupon provides a "quick cash influx"; they very certainly do not.

I'm in the industry -- and daily deals are sold to merchants as a cheaper alternative to conventional advertising. The expectation is, though, that you're going to be paying out of your marketing budget -- the sales pitch is that you pay only for customers who actually walk in the door (having "responded to your ad" by buying the coupon), rather than simply for the privilege of having something printed.

That said, the merchants don't get money until quite late in the game -- the folks running the daily deal have a nice big time buffer to handle refunds and the like before even thinking about payout to the merchant.

Also -- Groupon's business model sucks, and it was obvious from Day 1; this is why competitors with business models that don't require the huge customer acquisition costs that Groupon does have sprung up, and why such competitors are, well, competitive -- we may not have the marketshare, but if we keep our costs down, we don't need Groupon's huge (expensive!) marketshare to be profitable, either.

Re:So in other words... (1)

MightyMartian (840721) | more than 3 years ago | (#37518382)

In trouble soon? If they were the Titanic, I'd say the bow is already high in the air, and we're just waiting for the whole to come apart midships.

Someone could help here with a good car analogy.

Re:So in other words... (1)

BBTaeKwonDo (1540945) | more than 3 years ago | (#37518984)

Well, the Titanic sunk bow-first, so I think you meant "stern is already high in the air." For a car analogy, how about, "the wheels are coming off"? Or, to coin a phrase, "the auditors found the nitrous bottle and demanded it be taken out".

Re:So in other words... (1)

sdguero (1112795) | more than 3 years ago | (#37521536)

Nah. The government is gonna give them a $500 million 0% interest loan first. They won't fold until all the money has been transferred to a few execs offshore accounts. And that will take at least 2 years... ;)

Oh TFA (0)

Anonymous Coward | more than 3 years ago | (#37517862)

Google reportedly made a $6 billion bid for Google

ITWorld should get a new editor. Or at least get bought by Onion.

Re:Oh TFA (0)

Anonymous Coward | more than 3 years ago | (#37518214)

Why is that? They're not the only source [nytimes.com] reporting this.

Re:Oh TFA (1)

PickyH3D (680158) | more than 3 years ago | (#37518296)

You need to reread the two companies in his quote.

at least it happened first (2)

Trepidity (597) | more than 3 years ago | (#37517878)

If people bought into an IPO that was advertised with one set of revenues, and they were massively revised downwards after it happened, it'd be in the courts for years.

Re:at least it happened first (1)

maxume (22995) | more than 3 years ago | (#37517998)

It may not have been too big a deal, they are basically reporting the same numbers as before, they just aren't using the clever trick where they treat a coupon they make appear from nowhere as something that had a cost to create.

Re:at least it happened first (0)

Anonymous Coward | more than 3 years ago | (#37518216)

So, it would be like Walmart reporting sales instead of profit? Yeah, "same numbers" alright.

Re:at least it happened first (1)

maxume (22995) | more than 3 years ago | (#37518430)

No, same numbers in a literal sense. The net sales numbers that they are now reporting as revenues were clearly stated in their earlier filings.

I think the new statement is clearer/better, but not understanding the earlier reporting method would be a good reason to stay the hell away from IPOs.

Re:at least it happened first (1)

GodInHell (258915) | more than 3 years ago | (#37518646)

I think the new statement is clearer/better, but not understanding the earlier reporting method would be a good reason to stay the hell away from IPOs.

Although this is likely to be another buy-it-then-dump-it IPO. Get in ASAP and then sell after the e-traders come in, before it becomes clear that the stock's value is overstated.

-GiH

Re:at least it happened first (1)

Billly Gates (198444) | more than 3 years ago | (#37518862)

Still that is illegal and highly unethical to not follow GAAP accounting principles. Yes they cleared it which would prevent legal action, but any accountant there with Groupon on their resume will have difficulty finding another job. Accountants lose their CPA for that shit.

Revenue and sales are very different. I vew it as promising to pay vendors 60 days later so they can report and give the impression of double earnings and sales growth! They counted money owed to customers which is not sales and now 2 months later that money is due and they can't hide it anymore.

Sadly, in college they do teach you these things to boast the share price at all cost in finance 101. The difference is in accounting and finance is that we marked it clearly in the books. The goal was to fool the stay at home day trader and investor who didn't look too hard into the books.

Last one out... (1)

haus (129916) | more than 3 years ago | (#37517882)

... be sure to turn out the lights.

Re:Last one out... (1)

EmagGeek (574360) | more than 3 years ago | (#37520584)

I am sure the power company will take care of that.

Kill the bubble (1)

Anonymous Coward | more than 3 years ago | (#37517892)

Dear Groupon,

Please do everybody a favor and cancel your IPO. Any help you could give with killing the new tech bubble before it gets bigger would be greatly appreciated.

Thanks,
An American public that's been beat down enough

Re:Kill the bubble (1)

ThorGod (456163) | more than 3 years ago | (#37518172)

What new tech bubble?

IBIPO? (1)

Nethemas the Great (909900) | more than 3 years ago | (#37517922)

Inflation before IPO? Really? Would someone really do such a thing? I cannot believe this! Where are their ethics?

Crook (1)

DaMattster (977781) | more than 3 years ago | (#37517944)

Andrew Mason is a crook! Hopefully the SEC will do what they failed to do on his previous dot com failure and that is .... Prosecute him!

Groupon is providing a valuable service (1)

istartedi (132515) | more than 3 years ago | (#37517948)

Before Groupon, we knew that markets could remain irrational longer than investors could remain solvent; but we didn't know how long. Thank-you, Groupon.

Obligatory Family Guy (2)

Culture20 (968837) | more than 3 years ago | (#37517996)

"A textbook case of" *looks in textbook* "Fraw oo ud?"

OF-COOOOOURSE! (1)

roman_mir (125474) | more than 3 years ago | (#37518082)

Of-course.

As I said about Zynga [slashdot.org] , linked in and all of these other IPOs riding the FB's coattails (which didn't even go IPO yet), this is BS.

This is another bubble, it's because people want to buy FB stock, but they can't, so it's easy to just build any on-line services, have it lose a bunch of money, but have large revenues without any profits, and then just hope to take it to IPO based on revenue alone, without any real working business plan behind it. It's just another Wall street scam.

hi roman ! (0)

Anonymous Coward | more than 3 years ago | (#37518420)

i heard that Ayn Rand built a Bitcon mining rig !!!

Re:hi roman ! (1)

roman_mir (125474) | more than 3 years ago | (#37518622)

Really? Are you are Perry Voter?

Editing no longer required (1)

Corf (145778) | more than 3 years ago | (#37518168)

"Google reportedly made a $6 billion bid for Google last December, but it was not taken up by Groupon's board." ...wait, what?

Re:Editing no longer required (0)

Anonymous Coward | more than 3 years ago | (#37518360)

You're right - there's no way Google is worth $6 billion!

50% off GroupOn! (2)

bitt3n (941736) | more than 3 years ago | (#37518264)

Today's deal is 50% off popular deal site GroupOn! Ever wanted to own your own website that uses quirky ad copy to sell local services at 50% off of double the retail price? Is owning a website that was the cat's pajamas 3 months ago up your alley, assuming alley cats wear 3-month-old pajamas? If so, this deal is for you!

Re:50% off GroupOn! (0)

Anonymous Coward | more than 3 years ago | (#37518602)

Get three friends to buy in and your share is FREE!

Re:50% off GroupOn! (0)

Anonymous Coward | more than 3 years ago | (#37519430)

Ever wanted to own your own website that uses quirky ad copy to sell local services at 50% off of double the retail price?

Really? I don't always pay attention to every groupon deal, but every one that has caught my interest enough to actually think about has actually been discounted from the real price. With groupon I've usually paid about half what I would have paid without it. I suppose it will vary from vendor to vendor, but I'd expect groupon to make sure the vendors stay honest. Either they do a better job in my area than they do in yours, or groupon doesn't actually care and it's just that the vendors around here just haven't figured out how to game the system like they have in your area.

Re:50% off GroupOn! (0)

Anonymous Coward | more than 3 years ago | (#37519774)

...every one that has caught my interest enough to actually think about has actually been discounted from the real price. With groupon I've usually paid about half what I would have paid without it.

Link or your are an astroturfer...

Groupon's Daily Deal (1)

DrXym (126579) | more than 3 years ago | (#37518284)

A 50% discount on their IPO stock.

Re:Groupon's Daily Deal (0)

Anonymous Coward | more than 3 years ago | (#37519278)

That is exactly the price paid for stock in an IPO by the brokerage putting up the money. They take the stock and are able to offer it up on the "market" for double what they paid. People buy in like crazy (e-traders) and the rest is history. After this process unfolds they don't really care what happens to the price. The founders and any investors are paid from the 50% buy-in (IPO), and the brokerage who bought at half of whatever the public IPO price is gets paid from the storm of speculators and e-traders. They never tell you that on the day of an IPO the people you don't know--standing there clapping--just paid half of what you as an e-trader are going to pay and that the the founder and original stake holders are free and clear with their pay-out. It is a fucking scam. Each offering is under slightly different circumstances but essentially the same. Pay attention, do any serious big-time investors get in by purchasing public stock after the IPO launch? It is all speculation.

Re:Groupon's Daily Deal (0)

Anonymous Coward | more than 3 years ago | (#37520054)

Not quite right. Almost all IPO offerings are *best-efforts*. You are describing a fully-underwritten IPO where the bank pays the company the IPO price for the full offering of shares and the IPO subscriber buy these shares from the bank at whatever they want to pay.

In a *best-efforts* IPO, the underwriter merely connects the company to the subscribers but doesn't guarantee that the full offering is going to be sold. In a *best-efforts* IPO, typically the underwriter gets paid essentially on commission (fraction of the subscription + bonuses for a higher IPO price) and by the ability to get a small percentage of extra shares to handle oversubscription to the full offering to deal out how they see fit (often self-dealing to bank insiders). In a best-efforts IPO, the subscribers pay the IPO price to the company which then pays a commission to the bank for those transactions. Larger investment organizations will often pool subscription bids for their retail customers and it's certainly possible to get the IPO price if you bid appropriately for these IPOs.

The bank of course makes some money by reselling the self-delt over-subscription allotment at whatever the market price is (what you seem to be calling the public IPO price). However, make no mistake if you are a recipient of an IPO share on a best efforts offering, you are only paying the IPO price and nobody is getting a 50% discount on that price, if you aren't getting the IPO price, but getting the market price from a reseller, well, what's more to say, you are getting the market price, not the IPO price (and it may go up or down after the IPO).

On a fully underwritten IPO, the bank buys all the shares and is required to sell them to the initial IPO subscribers at the IPO price, but getting a subscription bit for a fully underwritten IPO is of course much harder (since the bank wants a guarantee they can resell the shares at the IPO price, they generally only work with larger investment entities that are willing to take a large number of shares at a high price). You usually can only get re-sold share from larger investment entities that have subscriptions at the IPO price and make those available to their best retail customers only.

However, you are right, it is all speculation after the IPO...

Never used Groupon (1)

adenied (120700) | more than 3 years ago | (#37518418)

I've never used Groupon. But I've used Gilt and a few of the other ones. No judgement here, but I think it's sort of interesting that they get so much press. Maybe I'm an outlier.

Also I'm sort of torn on this stuff... I've used these discount websites maybe 10 times over the last couple years. 75% of the time I feel like I got a good deal (though I bet the vendor doesn't) but the other 25% of the time services aren't really what was advertised and I leave sort of feeling like a sucker. Not that I was ripped off, but that my expectations were too high.

Re:Never used Groupon (4, Interesting)

jimicus (737525) | more than 3 years ago | (#37518970)

Thing is, those websites (and Groupon in particular) are getting a bit of a reputation.

Local business gets approached by Groupon. The deal is: make a fantastic offer (around 70% off); of the remaining 30% you charge, you keep half, Groupon keep half.

In theory, you turn the influx of customers (that you're heavily subsidising) into regulars. In practise, lots of businesses have found the sort of customer who comes in on a Groupon deal is the sort of customer who never under any circumstances would even dream of coming back at full price.

Re:Never used Groupon (1)

sycorob (180615) | more than 3 years ago | (#37519202)

Beautifully said. The businesses also get over-crowded with new (one-time) Groupon customers, and their regular customers suffer. I've never seen a restaurant in Chicago offer a Groupon more than once.

Re:Never used Groupon (0)

Anonymous Coward | more than 3 years ago | (#37521574)

I've seen a number of businesses offer groupons quite regularly in my area. Of course, they are usually "half off admission" for quarterly fairs and events, where admission price isn't the full amount that you pay to participate.

I've also found a number of places through groupon that I do go to at least semi-regularly now. And a few that I would patronize more often, if they weren't much further away than it's practical to drive, but whom I've recommended to friends.

YMMV.

People are truly surprised by this? (4, Informative)

EricTheGreen (223110) | more than 3 years ago | (#37518486)

Please. This is a company co-founded by Eric Lefkovsky. Some of us haven't forgotten Halo/Starbelly from the first dot-com bubble. Apparently he's working his magic yet again. The slight-of-hand doesn't even appear to be so very different from the 2001 state-of-the-art.

Missed buyout opportunities by company boards (1)

Animats (122034) | more than 3 years ago | (#37518854)

They didn't cash out by selling to Google when they had the chance. Just like Yahoo refused to be bought out by Microsoft. Big mistakes.

Next, Facebook. They missed their chance to IPO when they were at their peak.

Re:Missed buyout opportunities by company boards (1)

Anonymous Coward | more than 3 years ago | (#37520024)

They didn't sell to Google because Google wanted to look at their books first.

Idiots (1)

saleenS281 (859657) | more than 3 years ago | (#37519284)

I still can't believe this guy didn't sell out to google. I hope he's managed to put every penny he's gotten so far into the bank, because he lost his only shot at ever being a billionaire. Just as an anecdotal sidenote: two years ago every time my wife talked about getting some sort of deal it was groupon this, groupon that. Now her and her friends have 5-10 different sites they peruse for group deals. These guys have already lost the magic: they are no longer the "facebook" of group deals, and as such they will continue to see their revenue fall. Google way over-bid, and this guy was a fool not to run with it.

Re:Idiots (4, Insightful)

robus (852325) | more than 3 years ago | (#37519510)

My money is on Groupon's knowledge that Google's due diligence would uncover the rotten underbelly of their business and thus the deal would never have gone through and Groupon would be exposed. Much safer to bilk investors with "On The Internet" fever.

Re:Idiots (2)

mollymoo (202721) | more than 3 years ago | (#37522992)

Eric Lefkofsky is supposedly already a billionaire, though quite how much of that is based on his Groupon stock I don't know. Even if Groupon went bankrupt tomorrow he's already pulled hundreds of millions from the company so he'll not exactly be poor. You know all that investment Groupon got? Best part of a billion bucks? Yeah, that was mostly used to cash out the early investors, Lefkofsky included, at massively inflated stock prices.

Groupon Hoax? (0)

Anonymous Coward | more than 3 years ago | (#37519380)

Always thought their business model and their online experience was a joke could never understand how anyone could take them seriously.
We have not seen the end of this implosion I give them 6 months to go super nova.

Losing money? (1)

DogDude (805747) | more than 3 years ago | (#37519820)

The big point that everybody seems to be missing is: how could Groupon possible be losing money unless the founder is pocketing every last nickel? Their revenues are *massive* (50% of every "groupon") sold, and their costs are... what? A web site? An office? Groupon is a Bernie Madoff-sized scam. Personally, I hope the IPO goes through, because I'm going to short the hell out of it about one day after it happens.

Re:Losing money? (1)

Kalriath (849904) | more than 3 years ago | (#37520626)

I've heard they employ thousands of cold-calling sales people across the globe (Groupon is in more than just the US).

Re:Losing money? (1)

jonbryce (703250) | more than 3 years ago | (#37520716)

Their costs are advertising to local businesses in the cities they operate in. These customer acquisition costs are greater than the revenues they receive from them, and after they have experienced their first groupon influx they tend not to go back for more.

Re:Losing money? (1)

LunaticTippy (872397) | more than 3 years ago | (#37521450)

The business owners I've spoken with have all spent numerous hours talking with Groupon representatives, sometimes in person. There are lots of costs that aren't apparent to outsiders. I wish there was a way to have a daily deal that didn't funnel so much money to a distant company, but I am not about to enter such an overhyped market now.

Re:Losing money? (1)

PraiseBob (1923958) | more than 3 years ago | (#37521562)

how could Groupon possible be losing money unless the founder is pocketing every last nickel?

Funny you should say that... they had a round of outside investment and raised close to a billion dollars. Of which, $100 million went to keep the business running, and ~$800 million went to the founders pockets as a phony stock buyback. So to be fair, the founder and his friends are only pocketing 9 out of every 10 nickels.

Risking "No true Scottsman" (0)

Anonymous Coward | more than 3 years ago | (#37519954)

Properly working "Internet" will obliterate middleman. Internet in theory makes it possible to have full information, which includes price and location, so why does any one need a middleman?

Re:Risking "No true Scottsman" (1)

jonbryce (703250) | more than 3 years ago | (#37520738)

Because if a local restaurant puts a money off offer on their website, most of the world won't see it, whereas a lot of people subscribe to the Groupon newsletter for their city

Hmm... (1)

Greyfox (87712) | more than 3 years ago | (#37521358)

Can I get a Groupon coupon for Groupon stock? That's how it works, right?

Delightful recursion (1)

mattr (78516) | more than 3 years ago | (#37522650)

"Google reportedly made a $6 billion bid for Google"

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