Groupon's accounting practices under SEC scrutiny

Review could delay online discount site's planned IPO

REUTERS/Lucas Jackson

The Securities and Exchange Commission is asking online discount site Groupon some questions about its accounting procedures, the kind of questions that stretch out the SEC's review process for an initial public offering. According to CNBC, "[T]he SEC remains focused on at least two of the company’s favored accounting metrics, say people familiar with the matter: gross profits and consolidated segment operating income, or CSOI."

The SEC questions the validity of these categories, arguing that gross profit omits tangible sales-related costs, while CSOI similarly leaves out expenses whose inclusion would reduce the bottom line. Questions about Groupon's financial situation and outlook arose almost immediately after the company filed to go public on June 2, with analysts and observers noting Groupon's mounting losses, increasing spending and large debt. At the time Groupon filed its S-1, the Chicago-based company said it intends to raise up to $750 million with its IPO and would trade under the ticker symbol GRPN. In an amended filing on July 14, Groupon removed that dollar figure and left blank its expected net proceeds from the public offering. CNBC's anonymous sources say Groupon now hopes to go public in mid to late September. None of the other major Internet and social media IPOs this year have been received with the level of skepticism that has greeted Groupon's public offering. Maybe Pandora's, a little. Given Wall Street doubts, it'll be interesting to see if the lead underwriters -- Morgan Stanley, Goldman Sachs and Credit Suisse -- aggressively price the GRPN offering. Morgan Stanley was lead underwriter for Pandora, whose share-price range was increased twice in the days before the Internet radio station's IPO, as well as for LinkedIn, whose share price also was bumped up on the eve of its ticker debut.

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