5 ms·

"Previously, when it sold a restaurant gift certificate for $10, for instance, it would book the full amount, even though a portion went to the business owner."

"Previously, when it sold a restaurant gift certificate for $10, for instance, it would book the full amount, even though a portion went to the business owner." I keep trying to think of something to say about this. I'm speechless. What else do you need to know to accept that these guys are dishonest?

jcdavis 15y ago
Honest question: Why are you speechless? Did you read the S-1? They always documented how much they paid out to businesses. Yes, calling all $10 revenue is disingenuous, but this accounting change doesn't effect their profitability (or lack thereof)
- philwelch 15y ago
  Yes, calling all $10 revenue is disingenuous No, it isn't. That's the definition of revenue. What's disingenuous is obscuring the costs that correspond to, and apparently exceed, that revenue. If I buy an iPod from Apple for $150 and sell it to you for $199, my revenue is $199. That's the definition of revenue. Along with that revenue, I have $150 COGS (cost of goods sold), plus my own expenses. So my net income (revenue) might be anything less than $49.
wanorris 15y ago
If they take in the full amount and then pay some percentage of it to the supplier, isn't that just treating it as "cost of goods sold" the way you would account for a normal reselling arrangement like retail, wholesaling, etc.? I can see why the SEC might want them to change it, but it's not obvious to me that the only way you could come to this type of accounting is dishonesty. Am I missing something?
jcampbell1 15y ago
It is standard GAAP accounting. Amazon reports revenue as the sales price of the item sold, even though a portion goes to suppliers. Google reports total revenue from Adsense, even though a portion of the revenue goes to the site hosting the ad. In my opinion as an ex-finance/accounting guy, the SEC is wrong in this case, for a few reasons: 1. The share that the business receives is negotiable and different for different vendors. 2. Groupon is the point of sale for the full amount of the revenue. 3. The merchant receives their share at a different time from when the Groupon receives the revenue.
- ScotterC 15y ago
  Good point. Also, aren't the vendors effectively under 'accounts payable' because Groupon doesnt have to pay them immediately? They can float that money for some 30-60 days right? I know several business that do this (including mine) and no one has objected to how are revenue is stated. not that we're IPOing anytime soon :)
  - jcampbell1 15y ago
    It is interesting to note some counter examples though. A real estate agent books only the commission as revenue, not the price of the property. A stock broker does the same. A delivery company that delivers something COD, also only books the fees, not the value of the goods. The question is, is Groupon acting more like a broker/agent, or are they responsible for making sure the service is rendered? It is not obvious, so there is some logic to the SEC saying Groupon should record revenue as if they are an agent/broker. Either way, the initial comment that "OMG, Groupon are obviously crooks", is misinformed.
    - aneth 15y ago
      Groupon is handing all the money and keeping it for a significant period of time. A broker doesn't touch the transaction price.
- jacques_chester 15y ago
  I disagree. Groupon is a commissions based business; as I understand it, such businesses do not count an entire deposit as revenue. Indeed, most businesses which hold and forward cash on behalf of others don't count incoming monies as revenues. For example, banks don't book deposits made by account holders as revenue. (IANAA, seek professional accounting advice).
  - larrys 15y ago
    "Groupon is a commissions based business; as I understand it, such businesses do not count an entire deposit as revenue." They take title in the sense that they are paying (although paying late) and buying a certain amount of product (after they have received orders.) A commission would be if the same thing happened and the restaurant forwarded x% of the sale to groupon. Here's an example. You are a programmer and I send you a customer. The customer gives you $5000 worth of work. You pay me $500. So you collect the money and pay me a commission. Other way: I get the $5000 from the customer (I have the contract with them) and pay you $4500 for what you have done (and have added risk etc.) In the case of the first example I don't book $5000 in sales. In the case of the second example I do book $5000 in sales. (Forget the margins there are many businesses (supermarkets) that operate on small margins.) Now, for accounting purposes there could be reasons that I don't want to book $5000 in sales even though I could (stuff they don't teach in school btw.) Like if I book more sales then there might be some local gross receipts tax whereby I have to pay % of sales etc (or something like that). Of course if I am applying to a bank for a loan maybe I want the higher sales because they will be more impressed. This by the way is why you need to know as much as you can because professionals won't always tell you all the things you need to know to have the best outcome.
kanamekun 15y ago
I think Groupon could have been more conservative in how they described their financial statements. However, it's a huge stretch to call them dishonest. As a commenter put it here: "They were forced into accounting that Priceline hasn't been forced into in 15 years. Accounting that, I might add, provides no real additional visibility into the business. Now, it's a high-margin business with 1/2 the revenue it had before. Then it was a meh margin business with about 2x the revenues. This is not the SEC doing us any favors. It's rearranging chess pieces." http://allthingsd.com/20110923/more-groupon-amends-its-s-1-ipo-filing-again-over-accounting-issues/ http://allthingsd.com/20110923/more-groupon-amends-its-s-1-i... Given the media scrutiny on this, it's clear now that Groupon should have made this adjustment earlier, and referred to their full pass-through revenue as "gross billings" instead of "gross revenue". That would have been the most conservative way to describe their numbers. Still, it's a big stretch to call this dishonest. It was definitely not conservative labeling. But all the numbers were clearly disclosed, and the labels clearly described. If you read the S-1, it was very clear how their financials worked. The problem is that this is getting so much media attention that people aren't reading the S-1, and are getting their information from the media.
Getahobby 15y ago
This doesn't seem so shady when you realize that there are also these things called "liabilities" that you need to account for. It should be fine to count the whole cost as revenue as long as you are also accounting for the expense on the other side.
pbreit 15y ago
It was a bit aggressive but not absurd and not really dishonest (they weren't trying to hide anything). And ultimately doesn't impact cash flow or earnings which are much more important. It's like Priceline counting the whole fare as revenue whereas Expedia only counts the commission.
gyardley 15y ago
Late to the party, but every ad network I know counts 100% of the money they receive from the advertiser as revenue, and the money paid out to the publisher as cost of goods sold (COGS). This includes Google. Why's that dishonest?
larrys 15y ago
Maybe a better way to put it would be "gaming the system". Gaming the system is more or less an "oops hands got caught in the cookie jar" as opposed to dishonesty? Bringing up a certain plausible deniability (which they have) for what they have done. A child who didn't know better. (That's the image of course not the reality. Boys will be boys etc.) Obviously to a certain extent everyone does this (only varies with the degree of deception and how much the media questions it). Facebook or any site releasing users and including people who have created multiple accounts. So they can get up to a magic number that sounds good in the press. People like large numbers. If you're at a party and someone says "how many employees" you don't say "5 part time and 5 full time" you probably will just say "10". "We have an office in NYC" means you have someone working from home in NYC. Etc. In the 90's the big thing was the press repeating how many "hits" you got where each image on a page would be a "hit" (as opposed to unique IP's or users whatever.) So that was easy to manipulate.

jcdavis 15y ago

Honest question: Why are you speechless? Did you read the S-1? They always documented how much they paid out to businesses. Yes, calling all $10 revenue is disingenuous, but this accounting change doesn't effect their profitability (or lack thereof)

philwelch 15y ago
Yes, calling all $10 revenue is disingenuous No, it isn't. That's the definition of revenue. What's disingenuous is obscuring the costs that correspond to, and apparently exceed, that revenue. If I buy an iPod from Apple for $150 and sell it to you for $199, my revenue is $199. That's the definition of revenue. Along with that revenue, I have $150 COGS (cost of goods sold), plus my own expenses. So my net income (revenue) might be anything less than $49.

wanorris 15y ago

If they take in the full amount and then pay some percentage of it to the supplier, isn't that just treating it as "cost of goods sold" the way you would account for a normal reselling arrangement like retail, wholesaling, etc.? I can see why the SEC might want them to change it, but it's not obvious to me that the only way you could come to this type of accounting is dishonesty. Am I missing something?

jcampbell1 15y ago

It is standard GAAP accounting. Amazon reports revenue as the sales price of the item sold, even though a portion goes to suppliers. Google reports total revenue from Adsense, even though a portion of the revenue goes to the site hosting the ad. In my opinion as an ex-finance/accounting guy, the SEC is wrong in this case, for a few reasons: 1. The share that the business receives is negotiable and different for different vendors. 2. Groupon is the point of sale for the full amount of the revenue. 3. The merchant receives their share at a different time from when the Groupon receives the revenue.

ScotterC 15y ago
Good point. Also, aren't the vendors effectively under 'accounts payable' because Groupon doesnt have to pay them immediately? They can float that money for some 30-60 days right? I know several business that do this (including mine) and no one has objected to how are revenue is stated. not that we're IPOing anytime soon :)
- jcampbell1 15y ago
  It is interesting to note some counter examples though. A real estate agent books only the commission as revenue, not the price of the property. A stock broker does the same. A delivery company that delivers something COD, also only books the fees, not the value of the goods. The question is, is Groupon acting more like a broker/agent, or are they responsible for making sure the service is rendered? It is not obvious, so there is some logic to the SEC saying Groupon should record revenue as if they are an agent/broker. Either way, the initial comment that "OMG, Groupon are obviously crooks", is misinformed.
  - aneth 15y ago
    Groupon is handing all the money and keeping it for a significant period of time. A broker doesn't touch the transaction price.
jacques_chester 15y ago
I disagree. Groupon is a commissions based business; as I understand it, such businesses do not count an entire deposit as revenue. Indeed, most businesses which hold and forward cash on behalf of others don't count incoming monies as revenues. For example, banks don't book deposits made by account holders as revenue. (IANAA, seek professional accounting advice).
- larrys 15y ago
  "Groupon is a commissions based business; as I understand it, such businesses do not count an entire deposit as revenue." They take title in the sense that they are paying (although paying late) and buying a certain amount of product (after they have received orders.) A commission would be if the same thing happened and the restaurant forwarded x% of the sale to groupon. Here's an example. You are a programmer and I send you a customer. The customer gives you $5000 worth of work. You pay me $500. So you collect the money and pay me a commission. Other way: I get the $5000 from the customer (I have the contract with them) and pay you $4500 for what you have done (and have added risk etc.) In the case of the first example I don't book $5000 in sales. In the case of the second example I do book $5000 in sales. (Forget the margins there are many businesses (supermarkets) that operate on small margins.) Now, for accounting purposes there could be reasons that I don't want to book $5000 in sales even though I could (stuff they don't teach in school btw.) Like if I book more sales then there might be some local gross receipts tax whereby I have to pay % of sales etc (or something like that). Of course if I am applying to a bank for a loan maybe I want the higher sales because they will be more impressed. This by the way is why you need to know as much as you can because professionals won't always tell you all the things you need to know to have the best outcome.

kanamekun 15y ago

I think Groupon could have been more conservative in how they described their financial statements. However, it's a huge stretch to call them dishonest. As a commenter put it here: "They were forced into accounting that Priceline hasn't been forced into in 15 years. Accounting that, I might add, provides no real additional visibility into the business. Now, it's a high-margin business with 1/2 the revenue it had before. Then it was a meh margin business with about 2x the revenues. This is not the SEC doing us any favors. It's rearranging chess pieces." http://allthingsd.com/20110923/more-groupon-amends-its-s-1-ipo-filing-again-over-accounting-issues/ http://allthingsd.com/20110923/more-groupon-amends-its-s-1-i... Given the media scrutiny on this, it's clear now that Groupon should have made this adjustment earlier, and referred to their full pass-through revenue as "gross billings" instead of "gross revenue". That would have been the most conservative way to describe their numbers. Still, it's a big stretch to call this dishonest. It was definitely not conservative labeling. But all the numbers were clearly disclosed, and the labels clearly described. If you read the S-1, it was very clear how their financials worked. The problem is that this is getting so much media attention that people aren't reading the S-1, and are getting their information from the media.

Getahobby 15y ago

This doesn't seem so shady when you realize that there are also these things called "liabilities" that you need to account for. It should be fine to count the whole cost as revenue as long as you are also accounting for the expense on the other side.

pbreit 15y ago

It was a bit aggressive but not absurd and not really dishonest (they weren't trying to hide anything). And ultimately doesn't impact cash flow or earnings which are much more important. It's like Priceline counting the whole fare as revenue whereas Expedia only counts the commission.

gyardley 15y ago

Late to the party, but every ad network I know counts 100% of the money they receive from the advertiser as revenue, and the money paid out to the publisher as cost of goods sold (COGS). This includes Google. Why's that dishonest?

larrys 15y ago

Maybe a better way to put it would be "gaming the system". Gaming the system is more or less an "oops hands got caught in the cookie jar" as opposed to dishonesty? Bringing up a certain plausible deniability (which they have) for what they have done. A child who didn't know better. (That's the image of course not the reality. Boys will be boys etc.) Obviously to a certain extent everyone does this (only varies with the degree of deception and how much the media questions it). Facebook or any site releasing users and including people who have created multiple accounts. So they can get up to a magic number that sounds good in the press. People like large numbers. If you're at a party and someone says "how many employees" you don't say "5 part time and 5 full time" you probably will just say "10". "We have an office in NYC" means you have someone working from home in NYC. Etc. In the 90's the big thing was the press repeating how many "hits" you got where each image on a page would be a "hit" (as opposed to unique IP's or users whatever.) So that was easy to manipulate.