The WSJ reports that the SEC is on Groupon’s case for reporting “adjusted consolidated segment operating income” of $81.6 million while noting that subtracting marketing costs would produce a loss of $98 million. Groupon recently added that adjusted CSOI “should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a valuation metric” and that, according to the WSJ’s paraphrase, “investors should look at standard financial metrics such as cash flow, net loss and others when evaluating its performance.”
Apparently the SEC thinks Groupon shouldn’t disclose CSOI at all because it’s gross revenues rather than “profits.” But does the SEC really know what investors should rely on? Might not CSOI be a more realistic measure of future earnings than focusing on the investment the company made to produce that income? Maybe not, but as long as it’s accurate, why not just give investors all the information with the appropriate qualifiers?
Then, too, Groupon co-founder Eric Lefkofsky committed the sin of “gun-jumping” by saying that “Groupon is going to be wildly profitable.” Sort of reminds me of Google’s famous Playboy interview. As I asked back then:
[S]houldn’t the First Amendment have something to say about this broad regulation of truthful speech? See my article (with Butler), Corporate Governance Speech and the First Amendment, 43 U. Kans. L. Rev. 163 (1994), a chapter in our Corporation and the Constitution.
I recognize that there’s a point to this regulation: to protect investors from rushing into horrendous investments like Google in 2004.