Groupon glosses over 'unusual' accounting with SEC

Summary:Groupon tries to calm everyone down after some its proposed accounting methods stirred up some controversy.

As Groupon files its preliminary initial public offering prospectus with the U.S. Securities and Exchange Commission, the daily deal giant has had to revise some key points.

Specifically, the Chicago-based startup nixed references about an "unusual accounting treatment that has proved controversial," according to The Wall Street Journal. Instead, Groupon is now playing up a more traditional GAAP-approved key evaluation metric instead.

The original plan -- which could come across as a tad shady, odd or just different from the norm depending on your perspective -- was based upon something Groupon dubbed as an "adjusted consolidated segment operating income."

The WSJ explains:

ACSOI, which is a non-GAAP measure, excludes new subscriber acquisition costs—such as some of its marketing expenses—from the company's consolidated operating income, and produced positive figures of $60.6 million and $81.6 million for 2010 and the first quarter of 2011, respectively. But on a GAAP basis, the company actually generated operating losses of $420.3 million and $117.1 million during those periods.

Although the first mention of ACSOI has been bumped down now to the 32nd page of its SEC filing, which can be read in full online, Groupon execs try to defend themselves by stating that "we don't measure ourselves in conventional ways."

Here's how Groupon wants to measure its financial metrics internally:

First, we track gross profit—our revenue less the amounts we pay our merchants—because we believe it is the best proxy for the value we're creating. Second, we measure free cash flow, which is our cash flow from operations, reduced by our capital expenditures. We use this measure as an indicator of our long-term financial stability.

Third, we track Adjusted Consolidated Segment Operating Income (ACSOI) which is our Consolidated Segment Operating Income (CSOI) reported under U.S. GAAP before our new subscriber acquisition costs. We exclude those costs because, unlike our other marketing expenses, they are an up-front investment to acquire new subscribers that we expect to end when this period of rapid expansion in our subscriber base concludes and we determine that the returns on such investment are no longer attractive. 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.

After it once turned down a $6 billion bid from Google last year, Groupon filed for an initial public offering in June with the expectation to raise a minimum of $750 million.

According to the SEC filing, Groupon reported a second quarter revenue of $878 million, up from $644.7 million during Q1 2011. However, it also suffered a net loss of $102.7 million during the second quarter.

Related:

Topics: Google, Nokia, Start-Ups

About

Rachel King is a staff writer for CBS Interactive based in San Francisco, covering business and enterprise technology for ZDNet, CNET and SmartPlanet. She has previously worked for The Business Insider, FastCompany.com, CNN's San Francisco bureau and the U.S. Department of State. Rachel has also written for MainStreet.com, Irish Americ... Full Bio

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