Last Friday, Groupon announced that some of their numbers weren't exactly up to snuff. This didn't come as much of a surprise to the likes of Grumpy Old Accountants and others (read: everyone) who weren't exactly sold on metrics such as Adjusted Consolidated Segment Operating Income ("Adjusted COSI").
There have been questions about Groupon's financials since we all were given a taste last summer, and things haven't let up and now that they're taking a mulligan, everyone is all over them like I'm all over the today's offer to save 84% off air-duct and dryer-vent cleaning. Anyway, this has some people wondering if Groupon's Chief Financial Officer, Jason Child, should pack it in. I stumbled across this little quote from MarketWatch just a short time ago:
Sam Hamadeh, chief executive of PrivCo, which analyzes private companies and has been following Groupon through the IPO process, believes that it is time for Jason Child, Groupon’s CFO, to step down. [...] “The CFO has got to be replaced,” Hamadeh said late Monday on Bloomberg West, noting that Groupon’s financials, including its restatements of its S1 filing during the IPO process, have been “one disaster after the other.”
1. Creation of the COSI pro-forma metric that garnered market and SEC scrutiny.2. Restatement of revenues for the "gross vs. net" bust.3. Material weaknesses in controls over financial reporting that created accounting revisions.
The Groupon fiasco was funny because Groupon reported a total vanity measure of profitability in its S-1 and everyone, right down to the SEC, had a good laugh about it and was all “come on man,” and Groupon was all “yeah, fair, you got us, we’ll take it out.”Possibly less funny is the whole “so we overstated [understated!] net income [loss!] by $22.6 million [53%!] for 4Q2011 because, turns out, our refund expenses are a lot higher than we’d been telling you they were and also we have no control over our accounting function but our CFO is awesome” announcement Groupon made on Friday. Oops! The thing about that is that GAAP things like, y’know, revenue and net income, tend to be more important to people than ACSOI, and when they are screwed up the reaction is less tolerant amusement and more suing. So much suing.
[W]e first sounded the alarm over the Company’s reported goodwill in June of last year in “Groupon: Comedy or Drama,” expressing concern over the large intangible asset amounts being added to the balance sheet. Well, it appears that our concerns were justified after all, and that an impairment charge is imminent (it should be noted we don’t use E&Y’s impairment valuation model); indeed, Groupon probably should report the goodwill impairment now.How do we know that a goodwill write-off is on the horizon? Simple…the international operations to which Groupon has assigned over 75 percent of total goodwill ($126.2 of $166.9 million) is operating at a loss according to Note 14 of the Company’s financial statements. To make matters worse, goodwill comprises over 18 percent of the international segment’s total assets ($126.2 of $698.4 million). So which international assets are not performing? Goodwill, of course!