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Groupon backs away from scheduled IPO

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Groupon may be having second thoughts about when, and if, it should go public, joining the growing list of new web companies unsure of their steps in the market.

Groupon's roadshow, its bid to big up interest in its shares before the IPO, was due to start next week, but has now been called off, the Wall Street Journal reports.

Without a roadshow to convince folks to buy into the company, an IPO is unlikely to take place any time soon.

New web darlings have been attracted to the market by what has resembled the second coming of the dot-com boom. LinkedIn's IPO in May was showy to say the least, with shares more than doubling on the first day of trading to $94.25 from $45. Those dizzy heights were somewhat short-lived: the stock is today trading at around $79, still a respectable jump from its initial price.

However, there is a fair amount of concern that this dot-com boom could be as bust-prone as the last, with analysts and the market questioning the bottom line of some of these web firms.

After Groupon filed to go public in June, the US Securities and Exchange Commission (SEC) had to ask it to remove an unusual accounting metric, which it called Adjusted Consolidated Segment Operating Income (ACSOI), which was basically a fancy way to make it look more profitable, since it left out marketing and acquisition expenses. In the filing, Groupon said it thought this figure was "an important measure for management to evaluate the performance of our business".

"While we track this management metric internally to gauge our performance, we encourage you to base your investment decision on whatever metrics make you comfortable," it said in the filing.

The SEC has also had questions for social games company Zynga about how it measures its daily and monthly users. It also had questions about another unusual figures, what it calls "bookings", or revenue from the sale of virtual goods in its games. Zynga's filing said it used these figures internally and they weren't supposed to be a "substitute for revenue recognised in accordance with generally accepted accounting principles".

Zynga's IPO was due this month, but it might not happen now until as late as November, the New York Post reported last week.

Both Groupon and Zynga were reported by sources as having second thoughts about their IPOs because of the general turmoil on the markets. But particularly in the case of Groupon, pundits have been wondering if the firm's creative metrics are intended to mask a decline in its growth.

The company has been spending far more than it is making on its marketing, an expense that went from $4.5m in 2009 to a colossal $263.2m in 2010, its filing said. If you don't take the ACSOI figures, that means the firm made a loss last year of $456.3m, an incredible leap from the 2009 loss of $6.9m. And it was those numbers that started the unease among the analysts and observers, leading some to claim that the business model for daily deal sites is unsustainable.

In fact, the concern was so widespread it led to an email from Groupon CEO Andrew Mason to employees, subsequently leaked to AllThingsD, in which he slammed his critics for their "insane accusations" and went on to explain how the company was doing absolutely brilliantly.

Of course, this in itself wasn't a terribly good idea, as Groupon was in its IPO 'quiet period', the time the SEC requires a company to shut up about itself and not promote its stock. Despite the fact that the email was leaked, the postponement of the IPO may in fact be forced by the SEC, as it did with Salesforce.com's IPO in 2004 after the chief exec gave a lengthy interview to the New York Times in the quiet period.

At the time of publishing, Groupon had not responded to requests for comment from The Reg. ®

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