Groupon’s ‘Unusual’ Accounting Metric Draws SEC Scrutiny

The company could be misleading investors

Groupon is in hot water with the Securities and Exchange Commission due to a questionable accounting metric that it’s been using to market itself to investors in preparation for its upcoming IPO, reports The Wall Street Journal.

The SEC has asked Groupon to answer questions about an “unusual” measure it invented that presents a stronger image of the company’s finances by excluding marketing and other expenses, a source said. Groupon claims that the “adjusted consolidated segment operating income,” or adjusted CSOI, gives investors a better look at the company’s performance by leaving out “expenses that are noncash or otherwise not indicative of future operating expenses.”

But some investors believe that the adjusted CSOI draws attention away from marketing costs, which are causing the company to “hemorrhage money,” says the WSJ. Groupon said that it generated $81.6 million in adjusted CSOI in the first quarter of 2011, but if marketing costs are taken into account, the company actually experienced a loss of $98 million.

SEC spokesman John Nester wouldn’t comment specifically on Groupon, and said that the agency's “staff currently reviews all IPO filings, and an average range from filing to effective date might be three to six months.”

Groupon filed an amendment to its initial IPO filing on July 14 to address the SEC's concerns over adjusted CSOI, saying that it "should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a valuation metric." The company plans to file another amendment to further clarify the issue and is still shooting for a mid-September IPO.