Comments on: Imagine if Groupon’s wacky accounting caught on Mon, 26 Sep 2016 03:26:00 +0000 hourly 1 By: jmoskovitz Tue, 14 Jun 2011 12:40:33 +0000 This is no different than what occurred during the internet bubble of the late ’90’s, when creative people dreamed up infinitely ridiculous measures in order to value any company with a dot-com in its name at a billion dollars, regardless of whether it had revenues or not.

To exclude a cost that is such a vital part of a company’s business model, as marketing is to Groupon, is akin to measuring the U.S. deficit before expenditures for Medicaid, Medicare and Social Security. Actually, I find it almost insulting.

Marketing is particularly vital to Groupon, which employs a colossal “on-the-street” sales force, because, in my opinion, the model has yet to prove itself. If my understanding is correct, most of Groupon’s customers are restaurants. I recently modeled the economics of a Groupon transaction from a restaurant’s point of view, and determined that, in many cases, it simply doesn’t make sense. For this reason, I am somewhat skeptical about Groupon’s retention rate, but more importantly, in order to support a respectable valuation, it has to scale at an extremely rapid rate. I don’t see the costs of marketing going away anytime soon. In fact, Groupon’s sales force is most likely one of the primary reasons Microsoft recently offered to buy the company for $6+ billion.

Although stock options may not affect cash flows, the related expense incurred is an ordinary, necessary and continuing cost of doing business for companies like Groupon – in essence, a recurring component of compensation.

Investors with any savvy should see through this nonsense, and perhaps there really is a growth story worth being a part of. Hopefully, this proposed accounting chicanery will not be relevant to the company’s valuation, initially and going forward.

Otherwise, why not just use my preferred measure of earnings: “EFRBE” – Earnings From Revenues Before Expenses.

By: GA_Chris Tue, 14 Jun 2011 10:56:05 +0000 Well, if investors are that dumb… let’s just make sure that we, the tax payer, don’t end up bearing the cost like we did for the poor under-writing at banks

By: AdamMVillarreal Mon, 13 Jun 2011 21:35:11 +0000 I, for one, have given up on the American economy. We are going to drag the world down with us in true Schumpeter fashion.

I’m really excited for the reset! We have been propping up failed banks and companies, therefore failed products by default, for so long that they will OBVIOUSLY be overtaken by more flexible and modern systems after a collapse.

“Everything changes and nothing remains still.”–Heraclitus. He was the original Charles Schumpeter and/or Thomas Kuhn.