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The SEC is investigating Groupon’s unusual accounting metrics, CNBC reports.Groupon filed an S-1 with the SEC in June.
In the S-1, Groupon counted customer acquisition costs as a capital investment.
This allowed Groupon to post larger “consolidated segement operating income” or CSOI gross profit.
Usually, customer acquistiion is marked down as an ordinary cost – one that cuts into regular old profits.
The metrics struck lots of people as weird – the SEC apparently included.
Here’s what CNBC reporter Kate Kelly just said on TV (sorry for the all caps, but that’s how CNBC sends out their transcripts):
THE INTERNET GROUP DISCOUNT PROVIDER HAS BEEN ONE OF THE YEARS MOST ANTICIPATED IPOS SINCE ITS ORIGINAL FILING WITH THE SEC JUNE 2ND BUT SOME OF GROUPONS UNIQUE WAYS OF MEASURING SUCCESS HAVE DRAWN SCRUTINY FROM BOTH THE PUBLIC AND NOW FROM THE COMMISSION AS PART OF THE STANDARD PRE-IPO PROCESS THE SEC IS REVIEWING GROUPONS S1 AND DISCUSSING CHANGES THAT MIGHT IMPROVE IT IN MID JULY GROUPON FILED AN AMENDED S1 THAT REFLECTED A ROUND OF INTIAL SUGGESTIONS SAYS SOMEONE FAMILIAR WITH THE MATTER BUT THE DIALOGUE IS ONGOING ONE AREA OF PARTICULAR FOCUS IM TOLD BY MULTIPLE SOURCES HAS BEEN GROUPONS SELF SELECTED FINANCIAL METRICS NOTABLY GROSS PROFIT AND CONSOLIDATED SEGMENT OPERATING INCOME OR CSOI GROSS PROFIT IS WHAT GROUPON RETAINS AFTER PAYING A MERCHANT ITS SHARE OF THE PROFITS FROM A SALE BUT THE METRIC DOES NOT INCLUDE CERTAIN EXPENSES LIKE MARKETING CSOI IS A WAY OF MEASURING OPERATING INCOME WITHOUT INCLUDING THINGS LIKE CUSTOMER COSTS AND STOCK BASED COMPENSATION WHICH GROUPON AFFECTIVELY CONSIDERS TO BE ONE OFF ITEMS THE SEC HAS CONCERNS ABOUT HOW THESE METRICS ARE USED AND PRESENTED IM TOLD AND IS HASHING OUT WITH GROUPON HOW BEST TO PRESENT THEM IN ITS PERSPECTUS AS A RESULT THE REVIEW PROCESS USUALLY 2 TO 3 MONTHS LONG IS TAKING A LITTLE LONGER AND IT LOOKS LIKE THE IPO EXPECTED TO BE A BILLION DOLLARS OR MORE IN SIZE WONT COME UNTIL MID TO LATE SEPTEMBER AS A RESULT. WE SHOULD NOTE THAT GROUPON DOES INCLUDE GAP FINANCIALS IN ITS S1 AND THAT IT EXPLAINS IN SOME DETAIL WHAT COMPRISES BOTH GROSS PROFIT AND CSOI SO THE FACTS ARE ALL THERE BUT THE QUESTION DAVID SEEMS TO BE ONE OF TONE AND EMPHASIS AND THATS KIND OF WHAT THE COMPANY IS WORKING THROUGH RIGHT NOW.