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GRPN > SEC Filings for GRPN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for GROUPON, INC.

Form 10-Q for GROUPON, INC.


9-Nov-2012

Quarterly Report


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included under Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under "Risk Factors" and elsewhere in this Quarterly Report. Overview
Our vision is to be the operating system for local commerce. As part of that vision, we act as the local commerce marketplace that connects merchants to consumers by offering goods and services at a discount. Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including telephone directories, direct mail, newspaper, radio, television and online advertisements and promotions. By bringing the brick and mortar world of local commerce onto the Internet, Groupon is creating a new way for local merchant partners to attract customers and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see, buy and where to travel. We also provide a suite of other merchant-oriented products and services to consumers including a customer loyalty program, scheduler and payment processing.
Each day we email our subscribers discounted offers on goods, services and travel that are targeted by location, purchase history and personal preferences. Current and potential customers also access our deals directly through our websites and mobile applications. Our revenue from deals where we act as the third party marketing agent is the purchase price paid by the customer for a Groupon voucher ("Groupon") less an agreed upon percentage of the purchase price paid to the featured merchant partners, excluding any applicable taxes and net of estimated refunds for which the merchant's share is recoverable. Our direct revenue from deals where we act as the merchant of record is the purchase price paid by the customer for the Groupon excluding any applicable taxes and net of estimated refunds. In the nine months ended September 30, 2011, we generated revenue of $1,118.3 million, compared to $1,696.2 million in the nine months ended September 30, 2012. Revenue has increased as a result of expanding the scale of our business both domestically and internationally and as a result of expanding our products and services.
We have organized our operations into two principal segments: North America, which represents the United States and Canada, and International, which represents the rest of our global operations. For the nine months ended September 30, 2012, we derived 53.4% of our revenue from our International segment, compared to 46.6% from our North America segment.
Primarily as a result of our net losses in prior years, we have an accumulated deficit of $672.5 million as of September 30, 2012. Since our inception, we have driven our growth through substantial investments in infrastructure and marketing to increase customer acquisition. In particular, our net loss in previous years was driven primarily by the rapid expansion of our International segment, which involved investing heavily in upfront marketing, sales and infrastructure related to the build out of our operations in early stage countries. We intend to continue to pursue a strategy of significant investment in this segment and elsewhere in the future to support continued growth, consistent with the strategy we previously employed in North America and Europe. How We Measure Our Business
We measure our business with several financial and operating metrics. We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the long?term performance of our marketplace. The key metrics are as follows:
Financial Metrics
         Revenue. We believe revenue is an important indicator for our business.
          Our third party revenue is derived from deals where we act as the
          marketing agent and is the purchase price paid by the customer for the
          Groupon less an agreed upon percentage of the purchase price paid to
          the featured merchant partner, excluding any applicable taxes and net
          of estimated refunds for which the merchant's share is recoverable.
          Direct revenue, when the Company is selling the product as the merchant
          of record, is the purchase price paid by the customer, excluding any
          applicable taxes and net of estimated refunds.


         Operating (loss) income excluding stock-based compensation and
          acquisition-related expense (benefit), net. Operating (loss) income
          excluding stock-based compensation and acquisition-related expense
          (benefit), net is the consolidated operating (loss) income of our two
          segments, North America and International, adjusted to exclude
          acquisition-related expense (benefit), net of stock-based compensation
          expense. Acquisition-related expense (benefit), net represents the
          change in the fair value of contingent consideration arrangements
          related to business combinations. Stock-based compensation expense is
          primarily a non-cash item. As reported under U.S. GAAP, we do not
          allocate stock?based compensation and acquisition?related expense
          (benefit), net to our segments. We use operating (loss) income
          excluding stock-based compensation and acquisition-related expense
          (benefit) to allocate resources and evaluate performance internally.
          Operating (loss) income excluding stock-based compensation and
          acquisition-related expense (benefit) is a non?GAAP financial measure.
          For further information and a reconciliation to the most applicable

financial measure under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the "Results of Operations" section.

         Free cash flow. Free cash flow is "Net cash provided by operating
          activities" less "Purchases of property and equipment and software
          capitalization." We use free cash flow, and ratios based on it, to
          conduct and evaluate our business because, although it is similar to
          cash flow from operations, we believe it typically will present a more
          appropriate measure of cash flows as purchases of fixed assets,
          software developed for internal use and website development costs are a
          necessary component of ongoing operations. Free cash flow is a non-GAAP
          financial measure. For further information and a reconciliation to the

most applicable financial measure under U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the "Results of Operations" section.

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