Friday, July 29, 2011

Groupon Just Making Numbers Up as They Go

Posted By on Fri, Jul 29, 2011 at 3:00 PM

I don't know much about accounting, but it would seem that if you're keeping track of how much money you're making versus how much your spending, you don't get to selectively choose which expenses count. But then again, I'm not getting ready to go public and raise a gazillion dollars (estimated) like Groupon:

Because it loses tons of money, Groupon is promoting its IPO using an inflated income number that excludes marketing and customer acquisition costs. Why would you do that? Well, that's exactly what the SEC is now asking.

Groupon's calls its inflated income number "CSOI," or consolidated segment operating income, and no one else has heard of CSOI before. So the Securities and Exchange Commission has begun asking the company about this weird bizarre world it has constructed in which two of its biggest expenses do not count, a source tells the Wall Street Journal. This is a very good thing to ask about, given that Groupon's 2010 operating loss of $420 million was driven by $481 million of the very expenses excluded from CSOI. If you look at Groupon's accounting by generally accepted principles the online coupon firm spends $1.43 to make $1, has losses that are mounting rather than improving, and desperately needs cash from its IPO because it spent most of its last funding round on bonuses for CEO Andrew Mason and his backers.


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