What accounts for Groupon's revenue when the daily deal site sells coupons on behalf of merchants and receives payments from customers? Before the company filed for IPO with the SEC, it was booking total proceeds from each coupon sale as solely its own revenue. But in fact Groupon gets only a cut of the proceeds and the majority of them later goes to the merchant. Upon IPO, the company was forced by the SEC to correct its revenue accounting method and restate its revenue figures. As a result, the company's sales numbers don't look as impressive now and will not in the future. But for all the time up to Groupon's IPO, investors had been under the impression that the company was showing incomparable sales revenue. Without a change in perception, investors will be mistaken about the company's future performance.
The future performance of Groupon may also fall victim to its business model that is subject to further debate. For Groupon to make money, merchants must follow an ongoing business practice of offering discounts to customers. Any discounts to customers become deeper discounted sales for merchants after sharing customer payments with Groupon, which cuts more into merchants’ profit margins and may not be sustainable over extended periods of time. As merchants lose interest in offering discounts, it negatively affects Groupon's business.
The future performance of Groupon may also fall victim to its business model that is subject to further debate. For Groupon to make money, merchants must follow an ongoing business practice of offering discounts to customers. Any discounts to customers become deeper discounted sales for merchants after sharing customer payments with Groupon, which cuts more into merchants’ profit margins and may not be sustainable over extended periods of time. As merchants lose interest in offering discounts, it negatively affects Groupon's business.
