I'm no accountant, but my understanding is that cash on hand cannot be recognized as revenue if it carries a contingency (e.g., having to pay out to merchants). Please correct me if I am being naive on this point.
I think the contingencies you're talking about here are things like channel inventory and buybacks, not "any expenses".
"The money you have before accounting for expenses" is practically the definition of "revenue", isn't it? When people say "revenue" they're talking about the top line.
I'm not an accountant either, but having worked with them my understanding of "revenue recognition" is, loosely, "the point at which a promise of income can be accounted for as actual income". For instance, when a reseller commits to move Nx1000 units of a product at $Y, when does the producer get to account for $Nx1000xY dollars income.
Actually, I wasn't referring to gross vs. net revenue. I was referring to recognized revenue vs. cash on hand. If I can convince someone to give me $500 but I owe it all back to them, my only revenue should be interest/proceeds from investment of the $500 when actually earned – but the $500 on hand is not counted as my revenue. If my obligation to repay the $500 were to end, then it would become revenue.
I believe there are accounting strategies that might be exceptions to this, but I've never encountered any public companies can get away with using them.
There's a simple term for the issue you're describing: solvency. I don't think this is a rev rec issue. Like Patrick said upthread, Groupon is capitalizing on transaction float. They aren't borrowing money from people, claiming it as revenue, and then returning it.
I'm not saying they're solvent or that they're a good business. I don't know whether they are or aren't.
You're right: I re-read the original memo and I agree with you – he's addressing insolvency, not revenue. Leading up to an IPO, the key issue is solvency.
I'm going to take my own advice and ignore the Groupon sideshow until it goes away.
