Daily deal king Groupon will dump a controversial accounting approach so it can have its IPO in the near future, according to a report on All Things Digital. The metric, called adjusted consolidated segment operating income (ACSOI), received heavy criticism from the time it appeared because of the questionable happy face it put on the company’s results.
ACSOI – a metric so new that no one agrees on how to pronounce it – got slammed because it consisted of operating profit without the company’s considerable customer acquisition expenses or management’s equity-based compensation. According to the amended S-1 filed on July 14, Groupon said that ACSOI is ‘an important measure for management to evaluate the performance of our business’.
It’s highly unusual for any company to want to ignore customer acquisition costs, which are critical in a business. Clearly, the pursuit of growth has been a major undertaking at Groupon – with some success, as it has doubled its subscribers over last year, reaching 115 mn.
Everything has its price, however, and the cost of growth has been enormous. Groupon’s consolidated statements of operations make it clear how big the numbers are. In 2010, instead of a net loss of $413 mn, the company had an ACSOI of $60.6 mn – a swing of $474 mn. Not a profit, but hey – you take what you can get. The first quarter of 2011 went from a $117 mn loss to $81.6 mn in the black. As Apple CEO Steve Jobs might say, it’s magical.
Unfortunately, it’s not real profit, which makes the IPO look like something from the old tech boom. By the end of July, the SEC had asked Groupon to answer some questions about the metric. Looks like the discussions got uncomfortable, and the company thought backing down might be wise.
The main reason is timing. Further scrutiny would likely have forced Groupon to wait longer, which means more time without a massive influx of cash to keep everything rolling – and when your company loses $413 mn in a year, that’s high on your priority list.
The question is whether Groupon might be too late. A number of recent tech IPOs were hammered more heavily by yesterday’s market implosion than even the NASDAQ Composite, which lost 7 percent. LinkedIn, which actually saw a profit in its last quarter, dropped by 18 percent. Without a significant change in the mood on the Street, it’s hard to see how Groupon will get people to shell out for shares when consumers may not be willing to spend on the deals that are the company’s bread and butter.
By Erik Sherman