September 15, 2019

Groupon CFO’s Defense of Sketchy Accounting Does Not Impress

Our favorite accounting fusspots, Tony Catanach and Ed Ketz have responded to the response of Groupon's CFO Jason Child who refuted the Grumpies' claims that the company's 4th quarter numbers weren't worth the paper they were printed on. Staying true to form, Tony and Ed pick apart Child's arguments against their arguments (without actually stating his name) pointing out that all this non-GAAP reporting is more or less worthless:

Take consolidated segment operating income (CSOI) for example.  It starts with GAAP operating income and adds back very large expense amounts for stock-based compensation and acquisition-related expenses.  Or how about pro-forma net income which starts with GAAP net income and again adds back the very same large expenses related to stock based compensation and acquisition-related charges.  These metrics pretend that stock-based compensation and acquisition-related costs are unimportant when they are very real costs that the entity has incurred.  Instead of being transparent, managers who eliminate these items are merely trying to find a nonnegative number to report. We just don’t see how such metrics (which only bias reported performance upward) help analysts unless you believe analysts can’t read financial statements or add and subtract.  Could the Company be feeding the “sell side” analyst community performance results that will make it easier for them to sell Groupon stock?  After all, these are the only analysts we know of that don’t read and can’t add.

Of the course the most important point that the Grumps made is that Jason Child actually took the time out of his otherwise, what I imagine to be, maddeningly busy schedule. Sure, a CFO is a face of the company in certain respects, and CFO probably egged him on a bit but why would a CFO of a flavor-of-the-month company like Groupon go to the trouble to respond to what academics who run an wonky obscure accounting blog say? Just because CFO quoted them? GOA were talking about this months ago and now their opinion has found its way into the sterling digital pages of CFO it's suddenly worth addressing? Christ, that's lame. All due respect to Tony and Ed, but GOA doesn't demand the same kind of attention as, say, Paul Krugman. But then again, maybe it, and they, should. To wit:

Groupon’s CFO took exception to our criticism about providing only aggregate cash flow data that failed to explain the 234 percent improvement in 2011 [operating cash flow].  But even he recognizes that “it is pretty unusual to have a business that loses money from a GAAP income perspective, but actually generates free-cash flow.” Sorry Mr. CFO, “pretty unusual” does not hack it…this situation refutes all logic!

Maybe the Groupon spinmeisters will get to Child and prevent him for getting down into mud further but hopefully he takes his communication cues from his boss

Groupon CFO's Spin Raises More Red Flags [GOA]

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