From the annals of wondrous accounting tricks

Groupon:

The adjusted CSOI measure is the one I find a little disturbing. This measure backs out “online marketing expense, acquisition-related costs and stock-based compensation expense.” Not counting online marketing expense seems, uh, ridiculous. The company writes that “online marketing expense primarily represents the cost to acquire new subscribers and is dictated by the amount of growth we wish to pursue.”

An online marketing company decides to treat online marketing as a not an expense.

That\’s, umm, pretty good really.

4 comments on “From the annals of wondrous accounting tricks

  1. About as pointless as EBITDA (earnings before taking into account the cost of the investment to create those earnings).

  2. If it is not an expense, what do you think it is? A charitable donation?

    No, it is being counted (in this CSOI treatment) as capital expenditure – (i.e. which creates an asset which is written down over the useful (average) life of the customer relationship.

    Precisely because Groupon is an online marketing company, this expense is the cost of acquiring its core business assets, not an incidental ongoing running costs.

    Effectively, like EBITDA, it is showing the cash-generating ability of the business, which has to be compared to the asset price paid for those customers.

    If I was going to acquire Groupon, I’d want to compare their cash-generating abilities to my customer-acquisition cost – or vice-versa. – which is why these things should be “stripped out” or shown separately.

  3. Pingback: Groupon’s changing business model

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