Groupon Analysis

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Revenue recognition 2. In its initial S-1 filed on June 2, 2011, Groupon prepared its financial statements recognizing revenue from coupon sales using the “gross method” (Exhibit 3). However, Groupon subsequently restated to the “net method,” which showed only Groupon’s share of coupon sales revenue. Exhibit 6 reconciles the gross method as originally reported with the net method as restated in the third amendment to the S-1 dated September 23, 2011. a. Estimate the relative percentage of total revenue in 2010 that Groupon and merchants each earn from online coupon sales. Sales (000) ` 2010 Previously Reported $713,365 Adjustment $(400,424) Restated $312,941 Groupon % of Total Revenue 44% Merchants % of Total Revenue 56% Based on the readjustment made for revenue in 2010, the relative percentage of revenue that Groupon earns from sales is 44 percent. The percentage of revenue that the merchants earn is 56 percent. b. What is the gross profit percentage in 2010 under the gross versus net methods? 2010 Gross Method $713,365 Cost of Revenue $433,411 Gross Profit $279,954 GP% 39% 2010 Net Method $312,941 Cost of Revenue $32,494 Gross Profit $280,447 GP% 90% Under the gross method, the gross profit percentage in 2010 was 39%. Under the net method, gross profit was 90% c. What is the growth in revenue from fiscal 2009 to fiscal 2010 using the gross method? What is this growth in revenue from fiscal 2009 to fiscal 2010 when revenue is restated to the net method (Exhibit 6)? The growth in revenue from 2009 to 2010 using the gross method 2,341% as Groupon went from revenues in 2009 of approximately $30 million to $713 million in 2010. The growth in revenue using the net method was still particularly high at 2,152% growth. d. Which method (gross or net) do you believe is more informative to investors who

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