It seems that Groupon is offering deals on more expensive items, and customers
want more refunds as prices go up. The news drove the stock down 17 per cent
on Monday. Just youthful bad manners, or an indication that Groupon might
not become the strapping adult already priced into its shares?

In support of the former: the company came clean quickly; the revision brought
sales down by only 3 per cent; it did not affect cash flows; the company
reaffirmed its revenue guidance for next quarter.

Assessment

But any accounting revision that changes sales is, and should be, of magnified
importance. The difficult process of projecting a company’s future is built
upon an assessment of demand for its products, and the most important input
to that assessment is past demand.

For companies, such as Groupon, with innovative products, analysts who might
normally be able to sanity- check expense levels and margins will struggle
to put reported sales numbers in context. Certainly, there are genuinely
tricky questions about how and when revenues should be booked, but investors
have a right to expect extreme conservatism. This is also the second time
for Groupon, which overhauled its sales reporting practices last September.

Unwelcome multiplier

Groupon’s business is selling coupons for a merchant’s product, then taking
nearly half of the discounted sale proceeds. The most important worry about
the company’s future is that merchant demand for this sales tool will
degrade over time, as the novelty wears off and the costs become clearer.

Whether that is happening is already hard enough to read, given that
two-thirds of Groupon’s growth is coming from new international markets.
Questions about revenue accounting are a most unwelcome multiplier of this
existing uncertainty.

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