Accounting at Groupon and Zynga Shows Need for Review - NYTimes

Accounting at Groupon and Zynga Shows Need for Review - NYTimes

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Harry Campbell OCTOBER 11, 2011, 7:20 PM Grouponomics and Zyngametrics, but Few Sound Numbers By STEVEN M. DAVIDOFF Both Groupon and Zynga are slowly stumbling toward their initial public offerings. But don’t feel sorry for either company — it’s largely their own fault. The Groupon and Zynga offerings were to have been the event of the fall I.P.O. market. Both companies were expected to make their debuts to fat valuations and large stock price run-ups reminiscent of the Internet boom. Instead, both have been delayed, and in a much more volatile market, their expected values are starting to drop. Groupon has struggled more than Zynga. Groupon filed for an I.P.O. in early June. The filing revealed some extraordinary numbers. In two and a half years, Groupon had grown from nothing to $645 million in revenue in the first quarter of 2011. This was amazing growth, but Groupon’s costs were also astronomical. In 2010, Groupon spent $263 million on marketing and lost $456 million. In the first quarter of 2011, Groupon disclosed that it spent roughly $208 million on marketing and lost $146.5 million. Apparently, it takes a lot of money to make a deal. In the filing, Groupon’s chief executive, Andrew Mason, asked prospective shareholders to put these numbers into perspective by using a novel accounting metric: adjusted consolidated segment operating income. This measure subtracted hundreds of millions from online marketing and acquisition costs from operating performance. If used, Groupon’s results were strongly positive. With this metric, Groupon had income of $81.6 million in the first quarter of 2011. While the accounting metric seemed to turn lead into gold, the response was negative. A number of
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Accounting at Groupon and Zynga Shows Need for Review - NYTimes

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