Successful private companies don’t always make successful public ones
by Bob White on April 16, 2012
Do Groupon’s recent accounting and public relations problems provide a lesson for the greater tech industry? Many web-based companies that have gone public would do well to pay attention.
By all indicators, Groupon, the popular Internet group-discount clearinghouse, was an extremely successful private technology company. But since it went public in November of last year, the company has been plagued with accounting problems, compounded by communication and image issues.
Groupon’s stock price is currently well below its IPO price, and further deterioration in the company’s market value will likely occur if their problems are not acknowledged and corrected. In addition, the company will need to work to rebuild credibility in the investment community.
The focus of Groupon’s recent problems is the substantial restatement of its operating results for the fourth quarter of 2011 – the first quarter involving its operation as a public entity. This revision reduced the company’s fourth quarter revenues by $14.3 million and increased its net loss by $22.6 million. These revisions also affected the company’s 2011 annual financial statements.
One of the early red flags of accounting trouble was when, during the IPO process, Groupon was forced to abandon a strange accounting metric that attempted to exclude certain significant marketing expenses. Use of this metric substantially increased the company’s revenues. When the company’s calculations were revised to incorporate these marketing expenses, its total revenues were reduced by about 50 percent.
To top it off, Groupon management and spokespeople were seen as being flippant and dismissive when they appeared to convey that as a young, fast-growing company, problems like this were bound to happen.
Read the entire article: Groupon has accounting problems (again)