Pandora went public today. Unsurprisingly the stock shot up in price. The 1990s are such a distant memory for many.
While we are on the subject of internet companies that don't make money, Groupon also filed papers to go public. In an excellent blog posting, Aswath Damodaran takes issue with Groupon's accounting practices - notably its use of "Adjusted Consolidated Segment Operating Income". In essence what Groupon is trying to do is to strip out the expense that it incurs to acquire customers as it views these customers as a long term investment.
Groupon isn't the first internet company to try such a trick. AOL tried to treat the cost of aquiring new customers (using those AOL CDs that used to show up everywhere) as an investment. Eventually AOL had to take a big bath adjustment and report a $385 million one time charge.
As Damodaran points out, we can play games with accounting income all day long, but you can't fool with cash flow. This is why we focus on cash flow in valuation and capital budgeting.
A Finance Professor's blog. I am a Professor of Finance in the Poole College of Management at NC State University. My website: https://sites.google.com/ncsu.edu/warr Opinions are my own.
Subscribe to:
Post Comments (Atom)
What's going on with inflation?
I recently posted an article on the Poole College Thought Leadership page titled: " What's going on with inflation?" . This w...
-
A recent paper by some computer science folks at Indiana finds that the mood on twitter can predict movements in the Dow Jones Industrial A...
-
I recently posted an article on the Poole College Thought Leadership page titled: " What's going on with inflation?" . This w...
-
Another inflation illusion post. This time with math. Again the issue here is that you can't just increase the discount rate when you a...
No comments:
Post a Comment