Groupon Admits 'We're Not Profitable'

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Groupon amended its IPO filing, and in doing so, some of its numbers changed, particularly in regards to profits — or a possible lack thereof.

In June, using a metric called “adjusted consolidated segment operating income,” the daily deals site appeared to have an operating income of $60.6 million in 2010 and $81.6 million during the first quarter of 2011.

Would you buy your wedding cake through a coupon site?  Just asking.

However, that nonstandard metric left out marketing and new-member acquisition costs.  When you factor those costs back in, it turns out Groupon lost $420 million in 2010 and another $117.1 million during 2011′s first quarter.

In addition, the updated report put the site’s second quarter sales at $878 million, but it still lost $102.7 million.  How is that possible?  Well, there’s the confusing fact of how sales are reported — what Groupon refers to as revenue is their total coupon sales, but the company doesn’t get to hang on to all of it.  A portion of the cash goes to the site’s partner merchants, i.e., the businesses actually  providing the services, so it never really belongs to Groupon.  After that’s accounted for, Groupon’s first-quarter revenue this year stood at $341 million.

While Groupon hasn’t done anything shady or illegal here, the numbers do point to a potential chink in the daily deals juggernaut’s armor (and in the daily deals industry itself). Investors were unphased by the news, and to be fair, most startups take a few years before they ever turn a profit. But we can’t ignore the fact that these numbers could drop even further if subscribers decide that, hey, maybe they’re not even so into daily deals in the first place.  If that mindset takes root, daily deals sites may indeed be the next internet bubble to burst.