Groupon Case Analysis Essay

A. The SEC’s problem with Groupon including ACSOI in their financial statements was due to the fact that such a measure is not standard for public companies. Their reporting methods led to Groupon looking more profitable than it actually was. It is not unusual for companies to go to great lengths to disguise financial issues, and Groupon was hardly an exception. A majority of the controversy can be derived from the fact that Groupon’s metrics did not include expenses such as advertising costs in their operating income. As discussed in the article, reporting net income under GAAP resulted in a loss (-$413.4 M in 2010 and -$113.9 M in 2011), but because Groupon used ACSOI, they actually reported a gain ($60.6 M in 2010 and $81.6 M in 2011), which the SEC felt did not accurately represent the company’s financial standing.
B. The main difference between the acceptable non-GAAP metrics and ACSOI are the expenses not recognized under the latter, but included in the non-GAAP metrics. Under ACSOI, marketing expenses, acquisition-related costs, stock compensation
According to them, Groupon excluded discretionary expenses because their management doesn’t rely on the non-recurring and infrequent online marketing costs. Although discretionary expenses are inessential for most business, they are not for a company like Groupon. As an e-commerce site that connects subscribers with merchants and acts as a middleman, Groupon relies heavily on online advertisements to acquire new subscribers. Therefore, advertising expenses are essential to the company’s business model. We believe that costs such as these should not be left out in Groupon’s reporting of income, as they are cornerstones of the company. The management of Groupon chose to report revenue under this method in its first S-1 filing in order to misrepresent their financials, and we clearly do not agree with such