Groupon Abandons Misleading Accounting Metric

Groupon is a website dedicated to providing customers with information to help them find the “deal of the day” on specific products in local areas. It has attracted investors over the years by reporting quarterly profits. However, criticism of its accounting metric has caused it to abandon it for more truthful practices, revealing that it has actually been losing money the entire time.The previously used accounting metric was known as ACSOI, or Adjusted Consolidated Segment Operating Income. It allowed the web based company to report profits before taking into account the costs of acquiring new service subscribers and paying out stock option benefits to its shareholders. This has led many investors to believe that the company made over eighty million dollars in profit in the first quarter of 2011. In reality, the company actually lost nearly one hundred and fourteen million dollars overall during the quarter, and has continued to lose money throughout the current quarter. The use of ACSOI has allowed Groupon to fool investors into buying stocks when most of them would have opted to turn and run from the company had they known the truth about its lack of profits.

Groupon still claims that it will become profitable down the road when it grows larger, but this is difficult to believe given its lack of profits at its already large size. The company’s business model also provides no evidence that this will occur. Websites like Facebook increase in value as they grow because consumers are able to connect with more people, which is their entire reason for using the company in the first place. Groupon, however, does not become more useful as the size of its user network increases because the individuals do not contribute to the company by their membership.

It is common business wisdom that companies should focus on becoming profitable before allowing themselves to grow. Groupon did not follow this model, and exploded in size while it was still turning a negative profit.

Share This

CXRE » Lifestyle » Groupon Abandons Misleading Accounting Metric