Daily deals company Groupon, which recently made its preliminary IPO filing with the Securities and Exchange commission, has reportedly drawn ire from regulators over some creative metrics it devised to shed a more positive light on its financial health. The news has investors thinking back to the days of the first tech bubble, when a number of young web companies would use similarly inventive tactics to lure capital. Recently investment banker Frank Quattrone, who was a highly active participant in the first .com boom, described exactly these type of measures as warning signs of a bubble. “[When you see metrics like] engineers multiples, it’s time to put a big short on the market,” cautioned the banker. Don’t Miss: This Infamous Investment Banker is Using the B-Word Again.
The Groupon IPO places a valuation of $20 billion on the company, a number may believe may be too steep a price tag, especially given recent findings of tricky accounting. On its SEC filing the discount finder listed, “adjusted consolidated segment operating income” as a number to focus on, which prompted concerns from officials. Analysts say that the measure is designed to help direct focus to the company’s earnings rather than its expenses, with the latter growing much more rapidly than the former. Portfolio manager Ben Struber calls the language something he has “never encountered,” adding, “In essence Groupon is asking investors to look at their profit before any expenses. It’s not a surprise they want investors to focus on measures that don’t include expenses since their expenses have been rising.”
According to the WSJ, “Groupon said it generated $81.6 million in adjusted CSOI in the first quarter of 2011, though if marketing costs are taken into account that figure would be a loss of $98 million. To address concerns over adjusted CSOI, Groupon filed an amendment on July 14 to its initial SEC filing. In that amendment, Groupon clarified the metric “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.”
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Even given the amendment, the move is likely to engender more skepticism from bubble cautioners and potential IPO investors in the company. This is not the first ruckus Groupon has caused itself in the steps leading up to its public debut. 3 days after the company filed its IPO paperwork, co- founder Eric Lefkofsky told a news website, “Groupon is going to be wildly profitable,” violating the legally required quiet period by a company according to SEC regulations. The company has since offered an explanation, saying that Lefkofsky had asked the reporter not to publish his comments.