Groupon forced to amend IPO filing over concerns accounting methods are overstating earnings: Report

Groupon is being forced to make more changes to its IPO filing, with regulators in the United States still concerned over the use of a non-traditional accounting metric that may be overstating its actual earning potential, a new report has claimed.

The report has sparked more commentary within the eCommerce market about Groupon’s financial stability, with more questions about how much money the company is spending on marketing and questions over how much has been cashed out by investors.

It comes after a report published last month indicated that Groupon may need to delay its IPO due to amendments forced by regulators. The company has already changed its filing once as a result.

According to a new report by the Wall Street Journal, Groupon is set to amend its S-1 filing again in order to remove references to the term “ACSOI”, or adjusted consolidated segment operating income.

This particular accounting method is used by Groupon because it claims it needs to take into account one-off expenses that will set the company up for growth worldwide, particularly because it is expanding at such a high rate.

At the time of the filing, chief executive Andrew Mason said that “we think of it as our operating profitability before marketing costs incurred for long-term growth”.

According to the original filing, ACSOI was $81.6 million in the previous quarter, and $60.6 million for the 2010 calendar year. However, it actually recorded a loss of more than $100 million for the first quarter of this year.

The new report indicates that the change could be made even within the next few days, and that there is debate occurring within the company about how to deal with pressures from the Securities and Exchange Commission.

The reported pressure from regulators comes alongside commentary within the industry itself about how much investors have cashed out of the business, sparking discussion about whether the founders even view it as a long-term venture.

Sam Yip, senior research manager for Telsyte, says while the current report has not yet been confirmed, it would make sense for regulators to move towards a more trusted metric given Groupon’s unprecedented growth.

“There is no doubt there is extreme momentum happening within Groupon right now, and they are a dividing force within the industry worldwide.”

“Although the market may value momentum, it always has a lifespan. And traditional marketing principles around bottom-line profitability is the safest measure. It makes a lot of sense for them to move away from a metric that hasn’t been used before.”

Regulators reportedly started paying closer attention to the company after chairman Eric Lefkofsky said in a television interview that the company is expected to be “wildly profitable”.