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by dglassan
4861 days ago
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Fake data? Give me a break. Groupon pioneered a new business model. With a new business model you need to account for things in ways they have never been accounted for before. While I'm not arguing their numbers didn't look shady at times, but it's because no one knew how to account for how the cash moved through Groupon's books because no one had ever done it before. Do you count the full price of the deal as revenue? Or do you count only Groupon's cut of the deal as revenue? How often should they pay out the merchants? How do you account for refunds? Where do you keep the reserve pools Groupon needed to pay out all those refunds? Are the reserve pools considered an asset? Or a liability? How long do you need to hold the reserves before you can be sure there won't be any more refunds? Management had to answer all of these questions in a matter of weeks because Groupon was growing so fast. It's not surprising they kept changing the way they accounted for things so often. The fact that you think Groupon knowingly misled investors like it's some sort of conspiracy is absurd. |
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"Do you count the full price of the deal as revenue?"
Gross revenue? Sure. Net revenue? Of course not.
"Or do you count only Groupon's cut of the deal as revenue?"
Yes, as net revenue. Of course. Same as any marketing/advertising company.
"How often should they pay out the merchants?"
As slowly as possible, from Groupon's perspective. What was so amazing here was they essentially built an ad network where the inventory suppliers had zero power over the scenario and accepted unfavorable payment terms. Instead of getting paid net 30, they accepted net 90 or worse.
"How do you account for refunds?"
As credits to the expense account where the original purchase was posted, just like with any other business.
"Where do you keep the reserve pools GRoupon needed to pay out all those refunds?"
You don't have to keep it anywhere because they get marked as credits to the expense account. There's no need for a pool or any other sort of artifice. Creating a pool makes sense only to cloud what's going on.
"Are the reserve pools considered an asset?"
Of course not. But why do we have a pool again?
"Or a liability?"
Of course.
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Groupon did a lot of brilliant things. One of the smartest was realizing that though their model was no different from any other sort of ad network, since it wasn't immediately obvious to outsiders, and since their suppliers had so little power, they could make up new accounting rules and principles to generate favorable cash flows.
I don't write this to say this was wrong. It was brilliant. I want to disagree with the idea that they HAD to do this. They could have paid out net 30 and counted refunds like any other business, but they realized they could get away with not doing this for some time, and ran with it.