Moneybox: No Deal

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Moneybox No Deal Why you shouldn't believe the theory behind Groupon's business model. By Matthew Yglesias Posted Monday, Apr 02, 2012, at 06:17 PM ET Accounting is boring. High-tech innovation and fast-growing startups are fun. But sometimes boring things are important. And Groupon, the fast-growing market leader in the daily deal business, can't seem to get its accounting right. On Friday, the company issued an earnings restatement saying they'd actually lost $64.9 million in the fourth quarter of 2011 rather than the $42.7 million they'd originally reported. That's an embarrassing mistake, to be sure, but what makes things even worse is that the company's accountants, Ernst & Young, said it wasn't just a one-off error—rather, it reflected a "material weakness" in the company's internal financial controls. But the bigger problem isn't the losses or the restatement or even the material weakness in the controls. What investors should be alarmed about is a material weakness in Groupon's underlying business model. The specific error in Q4 has to do with the somewhat odd timing of the inflows and outflows of Groupon's revenue. At any given time, the company is selling a variety of "deals"—discount prices on goods and services. Since the deal itself is the product Groupon sells, you hand the money over to them right away. Money is then paid out to the service provider on an agreed-upon timetable, and at some later point a customer actually redeems his coupon. As Groupon has started moving into deals for higher-value services, it began allowing customers to back out and get refunds under certain circumstances ... To continue reading, click here. Join the Fray: our reader discussion forum What did you think of this article? POST A MESSAGE | READ MESSAGES Also In Slate The Government Already Has Penalties for People Who Don't Buy Health Insurance What Mad Men Got Wrong About Its George Romney Quip Last Night How The Hunger Games Righted a Wrong Against a Pioneering Musician	Advertisement
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