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How Groupon is growing--and growing up

Better IT systems and processes are helping the daily-deals company get closer to break-even ahead of its IPO.

Groupon's initial public offering is coming closer to reality, but the real stunner is how the company managed to cut losses dramatically in the September quarter relative to the three months ended June 30. Better systems and controls likely played a big role.

Last week, Groupon's disclosure that it will price 30 million shares between $16 and $18 got a lot of play. The attention isn't that surprising. Here's a company that filed to go public, ran into issues with the Securities and Exchange Commission, and fended off critics about its crazy growth and spending. The real shocker: Groupon suddenly looks a bit like a real enterprise.

For the quarter ended Sept. 30, Groupon reported a loss of $10.57 million on revenue of $430.2 million. In the June quarter, Groupon lost $101.2 million on revenue of $392.6 million. What happened?

Groupon stopped spending on marketing like it was crazy. Chances are also pretty good that the company also put in better controls and systems that gave it more visibility into its operations.

The growth of Groupon boggles the mind. Check out these quarterly growth rates.

For the nine months ended Sept. 30, Groupon’s revenue was $1.12 billion, up from $140.7 million for the same period a year ago.

Not bad for a company that basically ran on spreadsheets that were e-mailed around. Groupon said:

We have experienced rapid growth in demand for our services since our inception. Our employee headcount and number of subscribers have increased significantly since our inception, and we expect this growth to continue for the foreseeable future. The growth and expansion of our business and service offerings places significant demands on our management and our operational and financial resources. We are required to manage multiple relations with various merchants, subscribers, technology licensors and other third parties. In the event of further growth of our operations or in the number of our third-party relationships, our information technology systems or our internal controls and procedures may not be adequate to support our operations.

Given Groupon's revenue restatements, it's safe to say its controls were lax.

What changed? First, Groupon had to become more disciplined or its roadshow would have been drowned out by people thinking the company was a Ponzi scheme. The other notable item may have been its rollout of a global enterprise planning system and other tools from the likes of NetSuite in May said that Groupon went live with the company's OneWorld suite in six weeks. NetSuite will be rolled out in Groupon's 46 countries by the end of the year. also touted Groupon as a customer for its, Sales Cloud and other tools.

It's a bit of a stretch to totally attribute Groupon's new discipline to rolling out software-as-service tools, but it's clear the company has a lot more visibility than it once did. And software as a service allowed Groupon to move quickly and graduate from manual systems to enterprise software.

Zach Nelson, CEO of NetSuite, has positioned his company as one that can help consolidate various divisions and business units. Groupon, cobbled together via acquisitions, fits that mold nicely.

With better financial and visibility systems--actually anything other than random spreadsheets and e-mails--Groupon is able to reconcile its results and drive revenue better. There are no guarantees that Groupon will be a juggernaut--or a Google-like growth machine--but it's clear the company looks more grown up now.

This story initially appeared at ZDNet's Between the Lines under the headline "Groupon grows, grows up in a hurry with more discipline, better systems."