To put it simply, Groupon provides a service which is essentially customer acquisition. In order to report a profit, they use unconventional methods of accounting that imply costs of their own customer acquisition are irrelevant to their profitability. It's not esoteric or one-off costs they're eliminating from their "profit" figure.
Given that Groupon have attracted attention more for their claims of profitability than any particular novelty or technical superiority it's more than a little concerning that using conventional accounting methods they're making a loss, and it's ongoing marketing expenses rather than one-off acquisitions and compensation schemes that are to blame.
I personally don't have such a problem with eliminating some customer acquisition costs from the picture. If you are rapidly expanding, and spending $100, to acquire a customer that is worth $300 over the next two years, then clearly the business is going to be profitable. If the buiness is in the early phase of rapidly expanding, and building the brand with super bowl ads, the core business could be really profitable, but just be on a point of the growth curve where it is not profitable. The ACOSI metric was designed to give a flavor of the run-rate profits assuming the company was no longer in hyper-growth mode. It actually makes some sense.
I think that the essence of Groupon's value comes down to whether you believe that the $100 cost to acquire can in fact be consistently converted into the $300 at a rate that beats customer attrition, inflation, and interest rates.
Many of the stories in the media seem to indicate that businesses are getting burned by Groupon and that indicates that attrition is going to be a problem. Only Groupon themselves have a real idea of how large an impact this is having and how it will affect their business.
Early investors are cashing out pre-IPO which seems to indicate that insiders might have information that outsiders do not.
If I were a betting man I would bet that the insiders know that customer retention is an issue and the uncertainty is causing them to lock in more modest profits now instead of rolling the dice with everything post-IPO.
I agree that the valuation may be high, but their filing is no more problematic to me, than zynga's. Zynga failed to detail just how much of their revenue is coming from 1% of players who actually pay. They merely alluded to it as a risk factor, but I think is is a pretty important piece of information as a potential investor. I found filing Groupon's to be adequate. One bonus to a made up accounting metric is the SEC requires a GAAP reconciliation to be included, so you tend to get more details about the business than if the whole thing used GAAP numbers.
I don't agree that ACSOI makes sense. Marketing isn't just the initial customer acquisition cost. It's also a substantial expense that keeps existing customers active, engaged and profitable. If it was just about customer acquisition then we'd never see an ad for Tylonel, Coke or Budweiser.
Fortunately Groupon is issuing a new S-1 tomorrow, so it's likely that those who are looking for more information will get it.
Given that Groupon have attracted attention more for their claims of profitability than any particular novelty or technical superiority it's more than a little concerning that using conventional accounting methods they're making a loss, and it's ongoing marketing expenses rather than one-off acquisitions and compensation schemes that are to blame.