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Groupon Tried To Double Their Income On Paper; Does It Work At All?

Submitted by on September 29, 2011 – 10:17 amOne Comment
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Groupon’s well-publicized troubles in going public got worse this week, as it lost its second executive from the same position in only five months, and was also forced to lower its estimated revenue by half.

The giant of daily coupon sites has been working on an initial public offering (IPO) for months, where it will invite public investors for the first time. The opportunity was anticipated as a hot deal on Wall Street, until the company caused serious concerns with the Securities and Exchange Commission (SEC), the federal body that regulates such transactions, for accounting irregularities. A leaked memo could have even cost serious fines.

Then this week, Groupon announced that under revised methods, their estimated revenue would be half of what it was. Until recently, the company had calculated the entire cost of a sold Groupon deal as “revenue;” but half of that price goes to the merchant offering the deal.

Making matters worse, Groupon’s Chief Operating Officer recently left after only five months on the job. Her predecessor left after only two. Whatever their reason for leaving, high turnover in such executive positions makes potential investors nervous.

But even if Groupon straightens out their operations, is the business model itself a good idea? A study from last year found that Groupon promotions were unprofitable for 32% of businesses that tried them, and 40% of businesses said they would not run one again. One writer noted that as merchants found more profitable ways to use Groupon, the deals got worse and less enticing.

Still, Groupon provided all of the top five highest-grossing daily deals in August (as opposed to competitors like LivingSocial and Google), in part thanks to its brand new Groupon Getaways.

What do you think? Is this a category worth topping? Is Groupon still a good service and a smart investment?

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