Groupon's CEO lashes out at critics ahead of IPO

LOS ANGELES Fri Aug 26, 2011 1:48pm EDT

Groupon founder and CEO Andrew Mason attends the second day of the Allen and Company Sun Valley Conference in Sun Valley, Idaho on July 7, 2011. REUTERS/Anthony Bolante

Groupon founder and CEO Andrew Mason attends the second day of the Allen and Company Sun Valley Conference in Sun Valley, Idaho on July 7, 2011.

Credit: Reuters/Anthony Bolante

LOS ANGELES (Reuters) - Groupon Inc CEO Andrew Mason, lashing out at what he called "insane" and "hilarious" criticism in the media, defended the daily-deals website's record and growth strategy in a lengthy memo to employees on Thursday.

Glimmers of frustration showed in a humor-laced three-page memo written with characteristic dry wit. Mason, whose company is speeding toward an IPO that sources pin around September, defended the use of a controversial accounting metric that was eventually dropped, and dismissed concerns about competition from the likes of Google and Facebook.

The soon-to-married Mason revealed in the memo, first printed on tech blog All Things Digital and confirmed to Reuters by a source close to the CEO, that U.S. revenue should jump about 12 percent in August from July, while marketing expenses are expected to slide 20 percent.

"While we've bitten our tongues and allowed insane accusations ... to go unchallenged publicly, it's important to me that you have the context necessary to brush this stuff off," Mason addressed employees in his memo.

Mason argued that rival services were "small and not growing" and waved off accusations Groupon was "buying customers" by splurging on marketing -- two key concerns on Wall Street ahead of its market debut.

"Even if we wanted to continue to spend at these levels, we would eventually run out of new subscribers to acquire," he wrote. "The real point is that our business is a lot harder to build than people realize and our scale creates competitive advantages that even the largest technology companies are having trouble penetrating."

Analysts say Groupon's IPO plans had been dented by a stock market slump and new financial disclosures that suggest the daily-deal company's business is slowing in North America.

In its latest IPO filing this month, it dropped the use of "adjusted consolidated segment operating income," or ACSOI, a much-debated measure that excludes online marketing expenses, stock-based compensation and acquisition-related items.

Marketing expenses account for almost a fifth of revenue, an atypically high proportion but one that should drop over time as more people signed on for email alerts and eventually became customers, Mason said in Thursday's memo.

The CEO also lashed out at reports that Groupon was shutting more than 10 offices around China and laying off hundreds of employees at its Gaopeng venture with Tencent Holdings.

The Wall Street Journal reported both companies as describing a "change in strategy".

"What about our joint-venture with Tencent in China? Did you read the article that Gaopeng's CEO has kidnapped the first-born children of all our employees and is putting them to work building a laser beam he'll use to slice the moon in half?" Mason wrote, tongue-in-cheek.

"It turns out that that one isn't true either. China is definitely a different market, but every month we inch closer to profitability."

(Reporting by Edwin Chan; Editing by Gary Hill)