Have you ever heard about ‘Adjusted Consolidated Segment Operating Income (CSOI)’? It is new accounting metric came from a dot com company going IPO this fall.
Recent headline in Wall Street Journal (WSJ) says, “Groupon, whose IPO is expected to value the company at $20 billion, has highlighted in regulatory filings something it calls ‘adjusted consolidated segment operating income,’ or adjusted CSOI. Investors and analysts said that draws attention away from marketing costs, which are causing the company to hemorrhage money.”
Reading the article made me feels like I just graduated—so many accounting lingo that really new for me. And I have no clue what those are about. Well, it is common that private companies often use nonstandard financial metric, but I really never heard about the so called ‘adjusted consolidated segment operating income’.
“In essence Groupon is asking investors to look at their profit before any expenses. It’s not a surprise they want investors to focus on measures that don’t include expenses since their expenses have been rising,” Ben Strubel (a portfolio manager with Strubel Investment Management) says, as it is cited by WSJ.
We all know Groupon—a dot com company who expected to file its IPO this fall, one of several multibillion dollar technology offerings teed up for this year. Groupon’s adjusted CSOI is one of several nonstandard growth metrics that have increasingly come to prominence along with the new set of Internet companies.
Some more new accounting metrics—which is uncommon for many accounting people and financial analyst are:
- Booking – It is used by an internet games maker Zynga Inc., in its July IPO filing. ‘Booking’ reflects the total amount of revenue from Zynga’s two main businesses—the sale of virtual goods and ads—if it had recognized all of the revenue immediately at the time of a sale.
- MAU – it is occasionally disclosed by Facebook Inc.—the fastest growing social media company where we spend most of our time. It is an abbreviation of something called “Monthly Active Users”. Facebook hasn’t filed to IPO just yet, and it is unclear whether it would use the MAU figure in regulatory filings, or not.
- Total Listener Hours and Total Registered User – These are discovered in Pandora Media Inc.’s first IPO filing as “key indicators of the growth of our business,” though the Internet music firm cautioned that the total users figure was an imperfect measure.
Back to the ‘adjusted consolidated segment operating income‘, Groupon’s IPO filing says that adjusted CSOI gives investors a look at the company’s performance by excluding “expenses that are noncash or otherwise not indicative of future operating expenses.” The company said it generated $81.6 million in adjusted CSOI in the first quarter of 2011, though if marketing costs are taken into account that figure would be a loss of $98 million.
The Securities and Exchange Commission has asked Groupon (a 2.5-year-old company that sells daily deals to consumers in partnerships with local merchants) to answer questions about the unusual accounting metric it invented.
To address concerns over adjusted CSOI, Groupon filed an amendment on July 14 to its initial SEC filing. In that amendment, Groupon clarified the metric “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.” Instead, the company said investors should look at standard financial metrics such as cash flow, net loss and others when evaluating its performance, as it is discussed in WSJ’s article.
I guess more and more new financial and accounting metrics are coming from the dot com companies in the future. So lets get updated.