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The company updates its prospectus to add that it plans to reduce marketing spend...eventually
Groupon has updated its IPO prospectus for the fourth time in as many months, but this time it wasn’t to clarify its financial data (it may have finally hammered out all of those kinks in September). The company amended its prospectus this time to assure prospective investors that it will cut back on marketing spending—some day.
“We spent $345.1 million on online marketing initiatives relating to subscriber acquisition for the first half of 2011 and expect to continue to expend significant amounts to acquire additional subscribers,” the company states in the prospectus.
But it adds that such high spending levels will not continue indefinitely. Certain markers will prompt Groupon to reduce the amount it spends on subscriber acquisition in certain markets, including subscriber saturation and changes in “subscriber economics.”
“As a result of such factors, we anticipate significantly decreasing the amount of such investments,” the company states, adding: “We do not believe that this decrease in our online marketing initiatives will adversely impact our ongoing business with existing customers or subscribers.”
Groupon spokesperson Julie Mossler declined to comment.
The update likely comes in response to the tsunami of criticism Groupon has faced over the last several months over the amount of money it hemorrhages each year—most of which goes to subscriber acquisition. In 2010, Groupon made $312.9 million in revenue, but spent $284.3 million on marketing. All told, the company suffered a staggering net loss of $389.6 million last year. And it’s on track to lose even more this year: the company has already posted a net loss of $203.9 million for the first six months of 2011.
If you haven’t been following Groupon’s prospectus amendments (great for a little light bedtime reading), you might be a little confused at this point. “I thought Groupon made $713 million in 2010 and $1.5 billion in the first six months of 2011. That’s nothing to sneeze at,” you’re probably telling yourself.
That was the subject of Groupon’s last prospectus update, when it altered its financial data to differentiate between “revenue”—the amount of money that Groupon brings in, not including the share paid out to the merchant—and “gross billings”—the aggregated amount that the Groupon deals bring in, which includes the merchant’s share.
Previously, Groupon was counting the merchant’s share among its own revenue, which artificially inflated its revenue to $713 million, when the amount that Groupon took home was really only $312.9 million. It’s the high-value equivalent of a kid at a lemonade stand saying he made $2 while his partner made $1. So the lemonade stand made $3? Nope. The lemonade stand made $2. Dummy.
Also in the September amendment, Groupon encouraged potential investors to disregard the internal memo sent out by Groupon CEO Andrew Mason to the company’s employees, which insisted that Groupon is, in fact, explosively successful.
Prior to that, in August, Groupon amended its prospectus to drop its adjusted CSOI (consolidated segment operating income) metric, which calculated income without including the costs of customer acquisition or marketing.
Image source: marketingman.ca
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