In a piece by Lesley Stahl of CBS news show “60 Minutes,” she interviewed the leader of the Chicago-based social buying company in his first national appearance since the company’s initial public offering.

Of course, Stahl asked hard-hitting questions about the fishy revenue figures and the questionable accounting practices that preceded the IPO.

And, because it is “wacky” Groupon, she also questioned the appropriateness of a CEO who has a video of himself practicing yoga in tighty whities in front of a Christmas tree on YouTube.

Mason, who was often grinning during the interview, tried hard not to come off as defensive.

“The difference between me and other CEOs is that I’ve been unwilling to change myself or shape myself around what’s expected,” said the 31-year-old founder. “Am I as experienced or as mature or smart as other CEOs. No probably not, but there’s something useful about having the founder as a CEO.”

At one point, he acknowledged it wasn’t enjoyable when the criticism was peaking and the company was in its quiet period. He likened the experience to the Wolverine’s skin being melted off.

Stahl had no idea what he was talking about.

Did he wear a tie? Nope. But he thinks he should get credit for asking the producers if it was necessary. Is that a sign the boss is growing up? Maybe.

For the record, he does own more than four.

All-in-all, Mason worked hard not to say anything too revealing.

Here’s the whole interview:

And, here’s Stahl comparing Mason to other tech CEOs she’s interviewed:

Mr. Woodford, who was dismissed as CEO and president in October after exposing an accounting scandal at Olympus, said he has already filed a lawsuit against the company with a tribunal court in the U.K. and that another lawsuit in Japan may follow.

Read the rest of this post on the original site »

Groupon has priced its public offering at $20 a share, several dollars above the expected price range of $16 to $18. That will garner $700 million for the start-up, which is only several years old, at a valuation of close to $13 billion.

The offering for the Chicago-based daily deals site — which has had a controversial IPO process — was well upwards of 10 times oversubscribed, meaning there was a lot more demand than supply of its stock.

To alleviate the difference, Groupon has apparently added five million more shares to its offering, totaling 35 million shares sold.

Groupon has endured an unusual amount of criticism over a variety of issues — including accounting treatments, executive turmoil and growth prospects. But investors did not seem to mind all the noise and clamored to get into a possibly lucrative IPO.

The relatively small float of shares — about six percent of total — and that intense interest allowed Groupon to cherry pick its new shareholders.

It will be interesting to see if, as it endured loud critics when it was private, if short sellers will pile onto the social buying company now that it is public.

Executives from Groupon, including its CEO Andrew Mason (who has seemed to have gotten a nice haircut and suit for occasion), have been hawking the company — which sells an assortment of discounted services from a variety of local merchants — to investors all over the country over the last several weeks.

The company is set to go public tomorrow under the GRPN ticker on the NASDAQ.

While they are usually much less voluble than the chatty Web execs of Silicon Valley, the execs who run China’s fast-growing Internet companies seem to be keeping up just fine of late.

On Friday, for example, the Alibaba Group’s Jack Ma was positively effusive about wanting to buy all of Yahoo, a company which actually owns 40 percent of Alibaba. “We are very, very interested,” said Ma at an event at Stanford University.

Now, in an interview with Bloomberg, Renren CEO Joe Chen decided to take a smack at Ma over his disputed spinoff of its Alipay payments unit, which caused a high-profile ruckus with Yahoo earlier this year.

“It’s quite unfortunate,” Chen said to Bloomberg about disagreement, which has since been settled. “It caused a lot of uncertainty about Chinese Internet companies.”

Them’s fightin’ words, and a source close to Alibaba reacted with, well, reaction.

“Yeah, it shook confidence so badly that Silver Lake and DST [Global] just decided to put in billions to back Jack Ma,” referring to a recent funding deal by the large investors. “People shouldn’t try to blame their own lack of performance on others.”

Ouch!

Actually, Renren has bigger problems than Alibaba.

According to a substantive report in The Wall Street Journal yesterday, what’s really hurting Chinese Internet companies is the declining stocks caused by recent accounting scandals there, which may have attracted scrutiny from U.S. regulators.

Wrote the Journal: “A series of alleged accounting frauds this year at little-known Chinese companies listed in the U.S. has triggered a sharp shift in sentiment among investors, who are now worried about hidden business risks or financial problems.”

Hence possible investigations by the Securities and Exchange Commission that will surely drag Chinese stocks on U.S. exchanges down more.

And indeed, the stock of Renren — which had its own controversial issue with accurate data reporting at the time of the IPO of the social networking site earlier this year — declined 13 percent Friday, along with other Chinese companies listed here.

Groupon amended its public offering documents today, in a new filing with government regulators, in which it once again changed its accounting treatment.

That includes the way it measures revenue, which will now be reported excluding the money it pays out to merchants.

Some felt the “gross revenue” figure — a term for what are actually gross billings — was not reflective of Groupon’s true performance. It will now use net revenue.

Said the company in the current amended filing, its third:

“We consistently have stated that the amount we retain — rather than bill or collect — from the sale of Groupons is the key measure of the value we create. This change in presentation is consistent with that belief.”

Okkkkaaaay, whatever you say, but the change was requested by the Securities and Exchange Commission.

In its second amended filing, Groupon dropped its controversial “Adjusted Consolidated Segment Operating Income,” or ACSOI, metric, which excluded key marketing costs.

In its first amended filing, it told investors to ignore statements made by its Chairman Eric Lefkofsky and also made more accounting clarifications.

In the current changes, Groupon also posted the controversial letter to employees — first published here — that CEO and co-founder Andrew Mason wrote to strike back at the Chicago-based social buying network’s critics. Many felt the missive violated the quiet period before an IPO that companies are required to maintain.

And Groupon has been anything but quiet, as it advances and retreats to its Wall Street road show, which has been delayed and then not delayed (and might still be delayed, but who knows?).

Also today in its noisy goat rodeo: COO Margo Georgiadis is headed back to Google after arriving in April.

I guess things did not work out.

Lastly, the new filing also has added a new metric for “cumulative repeat customers,” showcasing how many customers have bought a Groupon offering more than once. That number is over 12 million.

Here is the full new S-1 filing to peruse and pick apart:

GRPN-20110923-S1A-0

In a blog it just posted, Groupon said its recently hired COO, Margo Georgiadis, “has decided to return to Google (her former employer) in a new role as President, Americas.”

She was only hired in April, just months before the company filed to go public. Georgiadis was previously VP of Global Sales at Google.

(Interesting way to get a better title at the search giant, Margo!)

Georgiadis was in charge of the company’s global sales, marketing and operations at the Chicago-based social buying service.

Sources said that the hiring did not gel on either side.

It might not be Georgiadis’ fault. She replaced Rob Solomon, who was in his job for one year.

And here’s another: PR hire Brad Williams, a longtime Silicon Valley communications exec, who was there and then gone in what felt like 23 minutes.

It seems Groupon does not like Silicon Valley types or, perhaps, vice versa.

Since its IPO filing, in fact, it feels as if it has been a non-stop circus disaster at Groupon.

That has included immense controversy about its sketchy accounting, huge slugs of venture funding going to its founders and a lot of worries about its growth.

Today, in a Friday late afternoon dumping of bad news in hopes that no one notices (I do), Groupon also amended its S-1 public offering filing once again to change revenue metrics and also add a controversial internal letter that CEO and co-founder Andrew Mason sent to employees to counter its many and growing critics.

There appear to be many more shoes dropping soon, said sources, so stay tuned.

Until then, here’s the whole and very terse — for Mason — post:

Update on the Groupon Team

As a fast-growing company, we’ve done a lot of hiring this year, including on our senior executive team. Since the beginning of this year, we’ve made a total of 8 additions — that’s 57% of the total executive team. It would have been great if I could say that we batted 1,000%, but that’s rarely the case; after five months at Groupon, Margo Georgiadis, our COO, has decided to return to Google (her former employer) in a new role as President, Americas.

We’ve built a fantastic team that has proven itself highly capable, so this change won’t have an impact on operations. In fact, we are using it as an opportunity to reorganize in a way that reflects our evolving strategic priorities. Sales, Channels, International, and Marketing will now report directly to me.

Here’s a note from Margo: “Groupon is a great company and I feel privileged to have worked there even for a short time. It was a hard decision to leave as the company is on a terrific path. I have complete confidence in the team’s ability to realize its mission.” We wish her well.

And that’s why some are wondering if — especially given the still dicey economic situation and the continued turmoil in the markets — the Chicago-based social buying company might delay or even pull its IPO.

Not so. Yet, at least. But that could change quickly.

Several sources close to the situation said that while Groupon’s management and board have not ruled out such a scenario, they will not make any determination about such a drastic move until after the landscape becomes clearer and also after the summer is officially over tomorrow.

“Clearly, the markets are much different than when Groupon started this public offering process,” said one person who is familiar with the internal debate within the company. “But no one can get a real sense of whether it gets better or worse for the next few weeks — that’s where the real questions begin.”

It’s not a bad thing for Groupon to be asking.

While gaming start-up Zynga, in comparison, ferrets away quietly on its way to an IPO, Groupon has been getting a daily smackdown on one of the many issues that seem to have captured the — mostly negative — attention of investors and the media.

Among the topics most mentioned: Groupon’s controversial accounting called ACSOI, or adjusted consolidated segment operating income; questions about its growth prospect in more mature markets; worries about whether the company can cut its marketing costs and still retain customers; and whether it will garner the giant valuations, once upward of $15 billion, that have been bandied about.

Aside from defending itself in a recent email sent to employees from its CEO Andrew Mason, Groupon cannot give complete public answers to these questions until after its IPO, due to regulatory rules.

While Mason’s damn-the-torpedoes missive seemed to be trying to communicate a strong confidence in the company, it’s clear that all the attacks on the company have become frustrating for him.

His internal communication, which was published here first, has also attracted more controversy, and some have suggested it violates regulatory rules.

So far, although it seems likely, the Securities and Exchange Commission has not commented on the email.

But compared to some of its peers, Brightcove is almost a throwback: CEO Jeremy Allaire’s company has a clearly defined business, straightforward accounting and a minimum of insider selling in the run-up to its IPO.

A quick glance at the the company’s filing will tell you that:

Brightcove’s business is easy to understand. It generates sales by helping Web publishers put video online. That “software as a service” model has let the company boost sales, along with the Web video boom. In 2006, it posted revenues of $1.4 million. Last year, it pulled in $43.7 million.

The company’s accounting doesn’t require a good imagination. There’s nothing in Brightcove’s S-1 along the lines of Groupon’s now-discarded “ACSOI,” or Demand Media’s novel approach to expensing content costs. And while plenty of established companies use not-strictly-official measures like EBITDA to show off their finances in the best possible light, Brightcove doesn’t bother — there’s not a single reference to “non-GAAP accounting.” Which makes it quite easy to see that the company lost $67.5 million from 2006 through 2010, and another $9.5 million in the first half of this year. It says it doesn’t expect to turn a profit until 2013 at the earliest.

Brightcove’s investors and employees are sticking around. Unlike Groupon, Zynga, and a few other highfliers that haven’t filed yet, including Twitter and Facebook, there’s been very little insider selling. Early investor AOL got rid of all of its shares last November, and last year Allaire sold off 1.3 million shares for a gain of $4.8 million; some other employees sold a few more shares. But Allaire still holds another 2.5 million shares — 4.5 percent of the company’s equity — and as far as I can tell, that’s about it for insider selling.

In July, the largest daily deals company sent an email to subscribers, saying it was changing the way it would use mobile location information. The same month, a congressman wrote to Groupon CEO Andrew Mason asking for more information regarding its data collection techniques, Reuters reports.

At the time, Groupon explained to users: “If you use a Groupon mobile app and you allow sharing through your device, Groupon may collect geo-location information from the device and use it for marketing deals to you.”

AllThingsD’s Kara Swisher wrote at the time: “In other words, if you let them, in order to improve the experience and make the Groupon app more useful, you’re being tracked.”

This was about the same time that Apple and Google got into hot water for tracking users on the phone, ostensibly in order to improve location-based services.

Groupon has become accountable for its actions not only because of the size of its business but also because of its announced intention to raise $750 million in a public offering.

In a response to the congressional questions, Groupon’s general counsel David Schellhase explained that the company is developing technology that will track customers’ locations, even if they don’t have the Groupon app open on their phones.

The letter was written to the co-chairmen of the House Bipartisan Privacy Caucus — Joe Barton, a Texas Republican, and Edward Markey, a Massachusetts Democrat — who made it publicly available today, according to Reuters.

Today, Groupon offers a service called Now that offers deals — based on a user’s location — that can be redeemed immediately. But in order to find the offers, you have to remember to open the app and search for discounts manually.

Schellhase argued in the letter that customers are asking for services, such as push notifications, that would make the process more automatic.

In the letter, Schellhase explained that if it were able to track a user’s location at all times, Groupon could send a notification to the phone that would appear around lunchtime and alert that person to an offer for a nearby restaurant.

“In order to choose a relevant deal for the user at the correct time, location information would need to be collected about the user just before noon, even if the Groupon mobile application is not running on the device at that time,” he explained.

Schellhase added that customers would have to sign up for the service, otherwise Groupon would not collect the data.

Already, this year it has doubled its subscriber base to 115 million, up from 50.58 million at the end of December.

But has the daily deals company been good at getting people to buy?

For the first time, Groupon has provided some insight into that question as part of its second-quarter results released today in its amended S-1 filing, which also deemphasized a controversial accounting method that subtracted its marketing costs from the bottom line.

Here’s the deal:

• Groupon had 115.7 million subscribers at the end of June.
• Of those subscribers, only about 20 percent — or 23 million — have ever made a purchase. Those are called cumulative customers.
• The average subscriber (not customer) spent $18 in the first half of the year, down from $21 last year.
• The average customer over the lifetime of a membership has purchased four Groupons, up from three a year ago.
• The average revenue per Groupon sold in the first half of the year was $25, up from $23 in the same period 2010.
• The number of merchants Groupon worked with in the first half of 2011 increased to 135,247, up from only 12,468 in the first half of 2010.

Converting subscribers into customers will be key for Groupon in order to justify its high marketing costs.

But with only two and a half years of operating results, it’s difficult to ascertain if things are headed in the right direction. Not to mention that the averages easily get weighed down by the massive numbers of subscribers who are signing up.

For instance, the average revenue per subscriber fell by $3 year over year, which may sound bad, but at the same time, the number of subscribers skyrocketed by 1,007 percent.

It’s also hard to draw any conclusions about the number of subscribers Groupon has been able to convert into paying customers.

For example, as of the first half of the year, 20 percent of subscribers had ever paid for a Groupon, down from 22 percent for the first six months of 2010. For the full year 2010, the number was even lower, when only 17 percent of Groupon’s 50.6 million subscribers were considered paying customers.

Groupon just rolled out a promotion today that could get these numbers really moving by the end of the month. If a subscriber buys any two Groupons by August 31, the company will give him or her $10 to spend on an offer in the future.

As All Things Digital reported last week, Groupon filed an amended S-1 IPO offering this morning, in which it deemphasized a controversial accounting method.

Instead of a metric called ACSOI, or adjusted consolidated segment operating income, the Chicago-based social buying company noted that gross profit was the “important indicator for our business, because it is a reflection of the value of our services to our merchants.”

But the dreaded ACSOI — which leaves out important costs of marketing — is not completely gone. In its filing, Groupon said it would use it internally, noting:

We exclude those costs because, unlike our other marketing expenses, they are an up-front investment to acquire new subscribers that we expect to end when this period of rapid expansion in our subscriber base concludes. While we track this management metric internally to gauge our performance, we encourage you to base your decision on whatever metrics make you comfortable.

In other words, for the love of Pete, please ignore ACSOI completely.

Groupon also included new financials in its filing for the quarter, with a 36 percent increase in revenue to $878 million from the previous quarter and double a year ago. But its loss was $102.7 million, compared to a loss of $35.9 million a year ago.

The company also reported that its subscribers grew from 10.4 million last year to 115.7 million now.

Costs are also lower by eight percent in the new quarter, with Groupon spending $165.2 on marketing to new subscribers, compared to $179.9 million in the previous one.

The filing with the Securities and Exchange Commission is a critical one for Groupon, whose public offering has been mired in questions about how it accounts for its financial performance.

Of particular concern: ACSOI, which is a number that does not include important costs, such as critical online marketing expenses to attract new customers to Groupon.

Such accounting is called non-GAAP (generally accepted accounting principles).

In 2010, Groupon reported that it lost $413.4 million using standard accounting practices. When it excludes some costs from its calculations using ACSOI — including online marketing expenses to attract new customers — it recorded a profit of $60.6 million in 2010.

The new results were stronger, to be sure. Such growth is important, especially given investor scrutiny of Groupon in the current economic turmoil.

As I wrote last week:

And, indeed, questions from the media, investors and, most importantly, the Securities and Exchange Commission about how Groupon accounts for its revenue and profits using ACSOI were swift and decidedly negative.

Hence, a furious debate — along with much internal tension — within Groupon about what to do. At first, in another S-1 amendment, the company backed away from using ACSOI as a “valuation metric.”

But that was apparently not enough for the SEC or anyone else, so Groupon’s top managers finally thought it best to rid itself of the term entirely.

Presumably, with a cleaner S-1, Groupon can concentrate on a whole new set of issues around its IPO, such as the tumultuous state of the markets.

According to numerous sources close to the situation and after regulatory pressure, Groupon will amend its S-1 public offering filing to remove references to an unusual accounting treatment that has attracted controversy.

Sources said the new filing by the social buying company, which is helmed by CEO and co-founder Andrew Mason (pictured above), will likely occur as early as Monday.

It can’t come a minute too soon regarding a metric called ACSOI, or adjusted consolidated segment operating income, which the Chicago-based Groupon used when it filed its S-1 documents in June.

As I wrote at the time about the odd use of ACSOI:

Let’s be clear, this is a number that does not include important costs, such as critical online marketing expenses to attract new customers to Groupon.

Such accounting is called non-GAAP (generally accepted accounting principles).

In 2010 and the first quarter of 2011, Groupon said its Adjusted CSOI was $60.6 million and $81.6 million, respectively.

On a GAAP basis, Groupon lost $413.4 million for 2010 and $113.9 million in the first three months of 2011.

And, indeed, questions from the media, investors and, most importantly, the Securities and Exchange Commission about how Groupon accounts for its revenue and profits using ACSOI were swift and decidedly negative.

Hence, a furious debate — along with much internal tension — within Groupon about what to do. At first, in another S-1 amendment, the company backed away from using ACSOI as a “valuation metric.”

But that was apparently not enough for the SEC or anyone else, so Groupon’s top managers finally thought it best to rid itself of the term entirely. That will happen next week, sources said.

And, in coming weeks, sources added, the company will be filing additional financial information about both its growth and costs, which will undoubtedly also be put under a microscope by the media, investors and regulators.

A Groupon spokesman declined to comment when asked about the removal of ACSOI from its public offering documents.

Earlier today, CNBC reported that the regulatory review of Groupon’s questionable use of certain accounting metrics in its IPO filing was delaying its offering until later in September.

While more questions from the Securities and Exchange Commission about how it accounts for its revenue and profits might indeed eventually push the IPO debut out, according to sources I have interviewed for months now, an offering in mid to late September was actually when the social buying company was planning to take its company public.

It makes sense, since August is seldom used for road shows for companies headed for an IPO — think Wall Street in the Hamptons and you’ll get why.

That said, the continued scrutiny by the SEC is not a welcome development for Chicago-based Groupon, which filed its S-1 documents in June.

In coming weeks, sources said, the company will be filing new financial information about both its growth and costs, which will undoubtedly be put under a microscope by investors and regulators.

That’s no surprise since the contents of the original filing immediately caused controversy, especially over the amount of its venture funding paid out to insiders and also over an unusual accounting treatment called adjusted consolidated segment operating income, or Adjusted CSOI.

As I wrote at the time:

Let’s be clear, this is a number that does not include important costs, such as critical online marketing expenses to attract new customers to Groupon.
Such accounting is called non-GAAP (generally accepted accounting principles).

In 2010 and the first quarter of 2011, Groupon said its Adjusted CSOI was $60.6 million and $81.6 million, respectively.

On a GAAP basis, Groupon lost $413.4 million million for 2010 and $113.9 million in the first three months of 2011.

Said Groupon about its accounting in its S-1 filing: “We believe Adjusted CSOI is an important measure of the performance of our business as it excludes expenses that are non-cash or otherwise not indicative of future operating expenses.”

Definitely sketchy enough to attract an SEC look-see, which caused Groupon to back away from Adjusted CSOI as a “valuation metric” in a recently amended S-1 filing. Groupon also stepped back a sloppy comment made after the filing by its Chairman Eric Lefkofsky — in a interview he apparently thought was off the record — that the company would be “wildly profitable.”

One thing is certain: There will surely be more amending of the Groupon S-1 in the weeks ahead as it stumbles toward its IPO, which will be one of the most prominent of the Web 2.0 era.

So exactly how fecund is “FarmVille”?

If reports hold, we’ll all find out today what the yield is from the online gaming phenom Zynga, which will finally be filing its regulatory documents sometime today.

The S-1 for a public offering valued at up to $20 billion, which will contain all kinds of juicy information about the San Francisco-based start-up’s business, is likely to come out after the markets close. Zynga is expected to raise $2 billion in the offering.

Before everyone gets to see what’s in it, there’s a lot that investors should be looking out for, based on recent IPO filings by similar companies, such as Groupon.

Digging Up New Accounting Ground

As Tricia Duryee pointed out, Zynga will be the “first major U.S. company supported primarily by the sale of virtual goods” to file.

That’s what will likely make the Zynga filing very interesting, from an accounting point of view.

How Zynga handles its accounting is sure to be much scrutinized, especially since Groupon attracted all kinds of ugly from its unusual treatment of its financial results.

To defocus from its money-losing under GAAP acounting, the Chicago-based social buying service used the more attractive “Adjusted CSOI,” which is defined as adjusted consolidated segment operating income.

My definition: Sketchy!

Zynga’s finances are expected to look better, reportedly generating about $400 million in profit last year on about $850 million in revenue.

It will be important to pay attention to the breakdown of those revenues and about what period of time the company accounts for them.

As Duryee wrote, Zynga has several choices:

Game-based model: The company recognizes revenue over the life of the game.

User-based model: Revenue is recognized over the estimated life a user plays the game.

Item-based model: Revenue is recognized based on the implied or explicit life span of the item — in other words, how long it would last in the real world. Examples of more durable goods are virtual vehicles, furniture or weapons. Revenue from these would be recognized for as long as the player stays active in the game. Revenues from a more consumable item, like a virtual cup of coffee or a jolt of energy, would be recognized almost immediately.

And there are still other factors to take into consideration, such as whether the goods were paid for with virtual currency or real cash, and how much information a company has for establishing the averages.

In the Revenue Weeds

Another interesting thing to study will be the revenue breakdown for Zynga, especially as it relates to its biggest platform provider, Facebook.

Such as: How many in-game items are purchased directly on Facebook versus through gift cards purchased in the store? How big (or small) is Zynga’s advertising business? What about mobile games? Will the profitability of individual games be called out, with details about their performance?

And, of all its various distribution platforms for its games, where does it get the most mojo?

That’s important, since Zynga will be seen as a proxy for Facebook’s business. Thus, a lot of investors might find some nuggets of information, since the pair are so tightly intertwined as businesses.

Facebook, of course, has been famously trying not to IPO, so any indication of the social networking site’s business will be carefully studied.

Reaping the Insider Rewards

Lastly, it’ll be important to see who is selling what and when among current Zynga investors.

Groupon ran into a buzz saw of criticism from the giant payouts its founders took out of the company from its massive venture funding rounds.

As Peter Kafka wrote:

Groupon raised a total of $946 million in two funding rounds last winter. It kept $136 million of it to help run the money-losing company. The remaining $810 million was paid out, via stock purchases, to CEO Andrew Mason and some of his backers, including Eric Lefkofsky, and, notably, the Samwer brothers, who sold their CityDeal company to Groupon in 2010 … Of note: This wasn’t the first time Groupon had raised money and taken cash off the table. In April 2010, the company raised $130 million, and handed $120 million to many of the same people.

My definition: Even sketchier!

Along with its founder and CEO Mark Pincus, Zynga investors are the pantheon of venture players, including Digital Sky Technologies, Kleiner Perkins, Union Square Ventures and angel investors LinkedIn founder Reid Hoffman and Peter Thiel.

How much Pincus and others inside the company have taken out and are selling should be one of the first places new investors should look.

Because with the hyped valuations that many of these Web 2.0 companies are getting, who’s zooming who should be a key sign to pay mind to.

It has only just announced its IPO plans, but Groupon is already getting a bitter taste of the brutality of being more public in an increasing series of negative reports aimed at its business prospects and execs.

That has included a spate of posts after it filed to go public last week about the unusual accounting treatment in an S-1 regulatory filing for the offering, which also showed a large outflow of its venture funding to the pockets of the Chicago-based social buying site’s founders.

Since then, though, the gloves seem to be off for Groupon, just as it starts to market itself to Wall Street investors.

Perhaps the toughest so far has been one written by Fortune’s Kevin Kelleher, painting a very sketchy investing portrait of the company’s Chairman and co-founder Eric Lefkofsky.

Wrote Kelleher in a piece titled “The Checkered Past of Groupon’s Chairman”:

But Groupon’s IPO has brought an uncomfortable spotlight onto Lefkofsky. While some attention focuses on his ambitions as an investor in tech start-ups, others see a “spotty history” and draw parallels between the past and the present. Lefkofsky’s track record, reflecting failures and successes, bears certain hallmarks: Rapid revenue growth accompanied by big losses, a penchant to sell stock early on, and lawsuits filed by investors, lenders or customers who feel they have been wronged.

Ouch.

While one of the lawsuits mentioned in the piece was dismissed with prejudice, it did not help that the piece included an early email used in the case, written by Lefkofsky in the Web 1.0 era, that read in part:

“Lets start having fun…lets get funky…let’s announce everything…let’s be WILDLY positive in our forecasts…lets take this thing to the extreme…if we get wacked [sic] on the ride down-who gives a shit…THE TIME TO GET RADICAL IS NOW…WE HAVE NOTHING TO LOSE…”

Double ouch, even if it is probably a bit unfair to use such rookie remarks from a young entrepreneur back then to reflect on him today.

Still, Lefkofsky — whom I met with recently at Groupon’s HQ and found as whip-smart and savvy as any Silicon Valley sharpie — does seem to need to be more circumspect in his utterances today.

Most specifically, the day after its IPO filing, he told Bloomberg in an interview that Groupon will be “wildly profitable,” referencing worries about losses unveiled in its financial statements and his past record of start-ups.

Said Lefkofsky on June 3:

“I’m going to be in technology for a long time. I’m going to start a lot of companies. These are not sham companies. These are great businesses. InnerWorkings is profitable. Echo is profitable. Groupon is going to be wildly profitable.”

While sources said it is unlikely that Groupon will be forced by the Securities and Exchange Commission to make a new filing due to the remarks, it’s just the kind of mistake the typically voluble company needs to avoid going forward.

In other words, no more words from Groupon.

Back in April of 2009, like all the rest of the parts of the Chinese Internet giant Alibaba Group, its Alipay unit was listed this way on its Web site: “Alipay is wholly owned by Alibaba Group.”

And right now, describing the online payments platform? (my italics): “Alipay is an affiliate of Alibaba Group.”

Memo to Yahoo CEO Carol Bartz: You might have noticed that critical change in Alipay’s corporate status, which happened last August, given the company you lead owns 43 percent of the Alibaba Group.

More to the point, Alipay accounted for $1.7 billion of Yahoo’s valuation.

Not surprisingly, Yahoo shares are down more than six percent in after-hours trading, likely in reaction to an unusual statement by Yahoo yesterday, in which the company said it had no idea until March 31 that Alibaba CEO Jack Ma had transferred ownership of the Alipay unit to a separate entity.

Sources said that apparently happened in a letter from Alibaba to Yahoo’s accounting department. Since then, the company said it has been trying to figure it all out.

Said Yahoo:

On March 31, 2011, Yahoo! and Softbank were notified by Alibaba Group of two transactions that occurred without the knowledge or approval of the Alibaba Group board of directors or shareholders. The first was the transfer of ownership of Alipay in August 2010. The second was the deconsolidation of Alipay effective in the first quarter of 2011.

Yahoo! disclosed this restructuring in its 10-Q after discussions with Alibaba Group and obtaining a better understanding of this complex situation.

Yahoo! continues to work closely with Alibaba and Softbank to protect economic value for all interested parties. We believe ongoing negotiations among all of the parties provide the best opportunity to achieve an outcome in the best interest of all stakeholders.

Translation: Alibaba’s Ma–who cites upcoming new rules about foreign ownership from People’s Bank of China related to operating its payment business–just snookered us and we need to play dumb until we decide whether a lawsuit will be one disaster too many for our much-beleaguered investors.

Really pissed off shareholders is more like it–BoomTown has been on the receiving end of an explosive series of calls from Yahoo’s investors today asking a variety of questions.

They include:

1. How could Alibaba have reported its results with Alipay consolidated in, even though it was a separate entity since last year? And does that spell trouble for Yahoo, since it used those numbers in its own regulatory filings in the U.S.?

2. How could Ma initiate such a transaction without approval from shareholders and its board, as Yahoo claims?

3. In any case, why weren’t Yahoo execs paying more attention to the swirling changes related to foreign ownership in China, especially since Yahoo co-founder Jerry Yang is on the Alibaba board, anticipating that there could be real problems ahead?

4. Why did Yahoo execs not tell shareholders about the situation immediately or even at its April earnings call? Or perhaps before David Einhorn’s hedge fund Greenlight Capital hedge fund took a big position in Yahoo last week, specifically noting the value of the company’s Asian assets as highly attractive.

5. Does this move mean that those pretty Chinese assets Yahoo has touted are not so pretty after all, given that these kinds of things can happen there?

6. Should U.S. investors remove themselves from that Chinese market, given that these kinds of things can happen there?

7. Is Bartz’s extraordinarily tense personal relationship with Ma a big part of the problem, creating a distasteful public feud over issues better left to quiet backroom negotiations?

There will be plenty more, of course, especially around Yahoo’s disclosures to investors.

Yahoo execs will argue that it did disclose in the proper manner from a filing point of view and that it did not reveal the fissure so as not to put its negotiations with Alibaba over the situation at risk.

But–especially given the myriad of continued missteps by Bartz that have worked investors’ last nerve–that probably is not going to fly.

In fact, that irked sentiment will surely be on display at Yahoo’s upcoming investor day on May 25.

Yahoo had hoped to show off its new team of execs and talk about some legitimate momentum the company is making.

Now, it will doubtlessly all be about China and what happened there.

So, Bartz has to have a better line than a take on a Hollywood classic: “Forget it, Wall Street. It’s China.”

Maybe so, but it’s her problem to solve now.

And here’s my favorite version of that line:

The two companies on Friday are set to announce a partnership that marries Intuit’s accounting software for small businesses with Salesforce.com’s sales-automation offerings–-all handled over the Web, or in the cloud, as many industry executives put it these days.

They plan to offer a Web-based application based on Salesforce.com technology that will be sold through Intuit’s App Center for users of QuickBooks, a program used to manage the finances of 4.5 million small businesses, Intuit said.

Read the rest of this post on the original site »

I have a Windows PC. Microsoft sends regular updates to their “computer protection” software. Do I still need other security software?

A:

It depends what you mean by “computer protection” software.

If you are using Microsoft Security Essentials, then you already have security software and don’t need another brand, unless you are unhappy with it.

If you are referring to general security updates to Windows, these do close vulnerabilities in Windows, but don’t obviate the need for security software.

Q:

I’m an accountant and do a few tax returns for my clients in my spare time. Would you please give me some recommendations on a computer that I could use for preparing tax returns and filing them electronically?

A:

While preparing tax returns might require some skill on your part, it doesn’t require an especially powerful computer, or one configured in any particular manner. Pretty much any PC or Mac on the shelves can do it.

If you have a favorite tax software program, perhaps one geared more to accountants than to average consumers, you might check its system requirements and be guided by these.

For instance, if it runs on only certain versions of Windows, or requires a certain amount of memory, you should buy accordingly.

Q:

We have two new iPads, the models with only Wi-Fi connectivity. Can I use the Wi-Fi hot-spot feature of an Android phone to provide them with Internet access?

A:

Although I haven’t tested this scenario, I see no reason why not.

The hot-spot feature creates a Wi-Fi network from a cellular data connection and should work with any Wi-Fi capable device, including your iPads.

You can find Mossberg’s Mailbox and all of Walt Mossberg’s other columns online at the All Things Digital website, http://walt.allthingsd.com. Write to Walt at mossberg@wsj.com.

The Dallas-based telecommunications company said Thursday it would now recognize gains and losses in the year in which they are incurred, using a practice called mark-to-market accounting, rather than spread them out over several years.

The accounting change clarifies one of the more volatile aspects of a large employer’s financial results, better tying performance to the current economic state. It would eliminate the “smoothing out” of gains and losses over several years. Under the old system, some of the pension-plan losses recorded during the stock market decline in 2008 would still be on the books for 2010.

AT&T joins a number of large U.S. corporations including Honeywell International, General Electric Co. and International Business Machines Corp. in revamping pension-accounting practices.

Read the rest of this post on the original site

Demand Media is set to go public, according to an amended filing with the Securities and Exchange Commission, with shares priced from $14 to $16 each.

The online publisher could sell up to 8.625 million shares and, if it prices at the top of the range, it could be worth about $1.3 billion and raise $138 million.

That includes 4.5 million shares from the company, three million shares from existing shareholders and another 1.125 shares that its underwriters have an option to sell.

Demand will net $58.1 million, if the IPO price is $15.00 per share, which it said it will use for “investments in content, international expansion, working capital, product development, sales and marketing activities, general and administrative matters and capital expenditures.”

The company added that “we currently anticipate that our aggregate investments in content during the year ending December 31, 2011 will range from $50 million to $75 million.”

Demand’s ticker symbol will be DMD on the New York Stock Exchange.

In its amended prospectus, Demand said:

This is an initial public offering of shares of common stock of Demand Media, Inc.

Demand Media is offering 4,500,000 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 3,000,000 shares. Demand Media will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $14.00 and $16.00.

The common stock of Demand Media has been approved for listing on the New York Stock Exchange under the symbol “DMD.”

Demand’s road to an IPO has been relatively quick.

One bump came last month, as BoomTown reported after the Santa Monica, Calif. company had to satisfy government regulatory questions over the way it recognizes costs of creating content.

Currently, using a concept of “long-lived” content, Demand has been amortizing those expenses over five years, since it says it continues to generate revenue on that material over that much time. Most publisher recognize costs immediately.

That’s different from many companies in the publishing business, which typically account for costs of creating content immediately as they are incurred or over a much shorter time period.

Demand has determined that its content has a more evergreen nature, compared to more topical–and perishable, from a revenue point of view–material produced by others.

Obviously, since this accounting treatment results in more attractive financial results, the longer expense period is of great interest to many other online content creators–such as AOL and Yahoo–which are watching the Demand IPO closely.

While the SEC did not ask Demand to make changes to its accounting practices, the amended S-1 is more detailed about them.

To be allowed to expense over five years, Demand said, the company has to use a sophisticated algorithmic platform–which other content creators do not have–to provide proof of “probable economic benefits” from that content over that time.

Since Demand has long claimed that it has a new and innovative approach to content creation, it is making the case to investors that it needs to have the correct accounting for that approach.

Said Demand in its amended filing:

“In determining whether content embodies probable future economic benefit required for asset capitalization, management has reviewed, and intends to regularly review the operating performance of content published.”

But, it warned:

“Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year.”

The practice has passed government scrutiny and now investors will decide what they think of this and the entire business of Demand.

Demand execs will now go on a road show for the offering, which is being led by Goldman Sachs and Morgan Stanley.

Yesterday, Demand Media submitted another amended S-1 to the Securities and Exchange Commission, part of its march to an initial public offering many had expected to take place sooner rather than later.

What’s taken so long, said multiple sources familiar with the situation, has been discussions between government regulators and the Santa Monica, Calif., online content company about how to more fully explain to investors–which it did so in the new S-1–how it expenses the costs of making its content.

Currently, using a concept of “long-lived” content, Demand has been amortizing those expenses over five years, since it says it continues to generate revenue on that material over that much time.

As the company noted in its S-1 filing:

“Capitalized media content is amortized on a straight-line basis over five years, representing the Company’s estimate of the pattern that the underlying economic benefits are expected to be realized and based on its estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of its content. These estimates are based on the Company’s plans and projections, comparison of the economic returns generated by its content of comparable quality and an analysis of historical cash flows generated by that content to date.”

That’s different from many companies in the publishing business, which typically account for costs of creating content immediately as they are incurred or over a much shorter time period.

Demand has determined that its content has a more evergreen nature, compared to more topical–and perishable, from a revenue point of view–material produced by others.

Obviously, since this accounting treatment results in more attractive financial results, the longer expense period is of great interest to many other online content creators–such as AOL and Yahoo–which are watching the Demand IPO closely.

While the SEC has not asked Demand to make changes to its accounting practices, the amended S-1 is more detailed about them.

To be allowed to expense over five years, Demand said, the company has to use a sophisticated algorithmic platform–which other content creators do not have–to provide proof of “probable economic benefits” from that content over that time.

Since Demand has long claimed that it has a new and innovative approach to content creation, it is making the case to investors that it needs to have the correct accounting for that approach.

Said Demand in its amended filing:

“In determining whether content embodies probable future economic benefit required for asset capitalization, management has reviewed, and intends to regularly review the operating performance of content published.”

But, it warned:

“Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year.”

Sources said Demand’s road show for investors will not start until the SEC gives its final approval, pushing its IPO into next year.

Demand’s initial filing was to raise $125 million at a reported $1.5 billion valuation. It had said it hoped to have DMD as its ticker symbol on the New York Stock Exchange.

There is no price range yet for the offering, which is being led by Goldman Sachs and Morgan Stanley.

Until it all happens, here’s one key section on these issues in the latest S-1 to peruse:

Capitalization and Useful Lives Associated with our Intangible Assets, including Content and Internal Software and Website Development Costs

We publish long-lived media content generated by our content studio which we commission and acquire from third party freelance content creators. Direct costs incurred for each individual content unit that we determine embodies a probable future economic benefit are capitalized. The vast majority of direct content costs represent amounts paid to freelance content creators to acquire content units and, to a lesser extent, specifically identifiable internal direct labor costs incurred to enhance the value of acquired content units prior to their publication. Internal costs not directly attributable to the enhancement of content units acquired prior to publication are expensed as incurred. All costs incurred to deploy and publish content are expensed as incurred, including the costs incurred for the ongoing maintenance of websites on which our content resides. We acquire content when our internal systems and processes, including an analysis of millions of historical Internet search queries, advertising marketing terms, or keywords, and other data provide reasonable assurance that, given predicted consumer and advertiser demand relative to our predetermined cost to acquire the content, the content unit will generate revenues over its useful life that exceed the cost of acquisition. In determining whether content embodies probable future economic benefit required for asset capitalization, management has reviewed, and intends to regularly review the operating performance of content published.

We also capitalize initial registration and acquisition costs of our undeveloped websites and our internally developed software and website development costs during their development phase.

In addition we have also capitalized certain identifiable intangible assets acquired in connection with business combinations and we use valuation techniques to value these intangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various judgmental assumptions and estimates including projected revenues, operating costs, growth rates, useful lives and discount rates.

Our finite lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the estimated pattern in which the underlying economic benefits are consumed. Capitalized website registration costs for undeveloped websites are amortized on a straight-line basis over their estimated useful lives of one to seven years. Internally developed software and website development costs are depreciated on a straight-line basis over their estimated three -year useful life. We amortize our intangible assets acquired through business combinations on a straight-line basis over the period in which the underlying economic benefits are expected to be consumed.

Capitalized content is amortized on a straight-line basis over five years, representing our estimate of the pattern that the underlying economic benefits are expected to be realized and based on our estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of our content. These estimates are based on our current plans and projections for our content, our comparison of the economic returns generated by content of comparable quality and an analysis of historical cash flows generated by that content to date which, particularly for more recent content cohorts, is somewhat limited. To date, certain content that we acquired in business combinations has generated cash flows from advertisements beyond a five year useful life. The acquisition of content, at scale, however, is a new and rapidly evolving model, and therefore we closely monitor its performance and, periodically, assess its estimated useful life.

Advertising revenue generated from the deployment of our media content makes up a significant element of our business such that amounts we record in our financial statements related to our content are material. Significant judgment is required in estimating the useful life of our content. Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year. We periodically assess the useful life of our content, and when adjustments in our estimate of the useful life of content are required, any changes from prior estimates are accounted for prospectively.

Smart investors will decide whether or not they like online content maker Demand Media, which recently filed to go public.

Before Wall Street buys into the IPO, those investors will peruse the financial disclosures, assess the management and analyze the market for creating content that uses digital tools to gauge consumer demand and assign stories based on those results.

And they will also look closely at the Santa Monica, Calif., start-up’s traffic, which has been growing steadily since its founding several years ago.

Except, insisted two bloggers in posts on the exact same day earlier this week, it looked like Demand’s traffic dramatically fell off over the last month.

First, Dan Primack from peHUB, using data from Quantcast, noted a huge traffic drop-off, although he did add that other analytic groups were not showing such declines.

He then spun what he himself called “an alternate (and unsubstantiated) theory” that Google (GOOG) had somehow tweaked its search algorithm and kicked Demand’s knees in some doing-some-evil plot to get into the content business itself.

If you are thinking it was grassy-knoll time, as I did, you are not far off.

But, by the end of the post, Primack wheeled back as fast as Demand’s traffic had supposedly declined, noting that a Quantcast spokesperson attributed the Demand traffic plunge to a “measurement tag that had fallen off.”

(Don’t you hate when that happens? That’s why we use digital superglue here at All Things Digital to keep those pesky measurement tags affixed firmly!)

But that seemingly bad data from Quantcast also popped up in a post by Slate’s James Ledbetter, who also noted a precipitous decline for Demand in late July.

He tried to throw out a number of scenarios and theories to explain the possible plunge, none of which were supported by much proof, either. But it all sounded juicy and sneaky!

The post actually seemed more of a lark for Ledbetter than any real reported analysis.

And comScore Director of Industry Analysis Andrew Lipsman even stressed in the comments of the Ledbetter piece that “there is no such traffic drop-off at Demand and there may be other inorganic reasons behind the apparent decline you noted in your article.”

Indeed, according to comScore (SCOR), which is sometimes considered an undercounter of Web traffic by publishers, Demand’s traffic is actually up to 58.7 million unique monthly visitors in July, a rise of seven percent from the previous month.

That’s actually the best Demand has done since last fall, as you can see here from comScore’s numbers since last September, during which time its traffic rises and falls by small amounts:

Demand’s U.S. Unique Visitors (000)

Sep-2009 52,495
Oct-2009 52,710
Nov-2009 49,278
Dec-2009 47,166
Jan-2010 51,327
Feb-2010 50,017
Mar-2010 55,481
Apr-2010 55,915
May-2010 56,261
Jun-2010 54,619

These numbers, as you will see, are not quite as gripping, showing a very slow march forward, as did Demand’s financials.

As I wrote in a post earlier this week, titled “The Lesson of Demand Media: The Online Content Business Is a Looooong March to the Big Time”:

The media business at Demand is still small, relatively speaking to other big content companies, with the content and media part of the revenue representing almost 60 percent of the business (a domain registrar business makes up for the rest).

And, most importantly, it is still unprofitable.

[Demand] said that, for the six months ended June 30, the company posted a loss of $22.3 million on revenue of $114 million. It was an improvement over a loss of $28.9 million on revenue of $91.3 million in the same period of 2009.

Using less strict accounting, on an operating basis, the picture is better, with the company’s loss cut to $4.7 million from $12.3 million in the same six months.

And using even less stringent non-GAAP financial rules, called, “Adjusted OIBDA,” Demand said in its regulatory filing with the Securities and Exchange Commission Friday that it made $25.6 million in profits.

Like I said, not so riveting, but also not so bad.

Which comes to BoomTown’s own theory: If you want a good story, buy a good book.

After news of the Demand Media IPO filing came out late last week, I was not that surprised to get an email from someone deeply involved in building an online content business.

“If they are worth over a billion with those financials, I can’t wait to find out what we are worth. What am I missing?”

Well, nothing actually, as Demand’s filing to raise $125 million in an initial public offering at a reported $1.5 billion valuation showed that making it big in the online content business was still slow going.

That said, Demand is surely going and, in fact, growing smartly from $170.3 million in revenue in 2008 to $198.5 in 2009 to possibly reaching–based on six months of 2010 results–well above $230 million in 2010.

That’s due to its increasing growth in traffic, largely via Demand’s popular eHow site and a network of others. According to the most recent numbers from comScore (SCOR), Demand’s properties make it the 17th-largest in the U.S., with 54.6 million unique monthly visitors.

But the media business at Demand is still small, relatively speaking to other big content companies, with the content and media part of the revenue representing almost 60 percent of the business (a domain registrar business makes up for the rest).

And, most importantly, it is still unprofitable.

The Santa Monica, Calif.-based start-up said that, for the six months ended June 30, the company posted a loss of $22.3 million on revenue of $114 million. It was an improvement over a loss of $28.9 million on revenue of $91.3 million in the same period of 2009.

Using less strict accounting, on an operating basis, the picture is better, with the company’s loss cut to $4.7 million from $12.3 million in the same six months.

And using even less stringent non-GAAP financial rules, called, “Adjusted OIBDA,” Demand said in its regulatory filing with the Securities and Exchange Commission Friday that it made $25.6 million in profits.

As MediaMemo’s Peter Kafka wrote over the weekend:

Some investors may balk at these non-GAAP numbers, but Demand, Goldman Sachs (GS) and its other underwriters clearly think there’s a market for them. And there’s certainly a hunger in the tech world for a big, brand-name IPO to break the dry spell. You can feel people willing this thing to work.

If Demand did, say, $55 million in OIBDA this year, it would need a multiple of 18 times trailing 12 months earnings to get to a $1 billion valuation. It would need 27x to get the $1.5 billion number that people are whispering to reporters.

Another way to get to $1.5 billion: Project OIBDA of $100 million for 2011, and ask for 15x on that number.

That’s a good thing since Demand, which has raised $355 million in funding since its founding in 2006, has only $33.6 million in cash left in its kitty–probably plenty to keep going–but it’s likely to need more investment to crossover to where it would not need any more money. (There is a $100 million untouched line of credit, but Demand is unlikely to want to dip into that right now.)

Hence, the IPO, which will give it both cash and stock to use to grow itself, either organically or via acquisition, all while keeping the costs of content creation lower and lower via innovative technology.

For Demand CEO Richard Rosenblatt–who has a series of notable financial wins so far, selling such Internet properties such as iMall and MySpace for big windfalls–it will be interesting to see if he can build the business for the long term, which he has said is his intent.

He might want to pay attention to the travails of AOL (AOL) CEO Tim Armstrong, who has plotted a very similar course in the content arena in order to turn around the long-suffering Internet icon.

The former Google (GOOG) exec is facing strong headwinds in doing so, with his legacy subscription access business dying faster than expected, while his advertising revenue remains frustratingly flat.

Armstrong has his hands full building up that content business while also fixing all the various maladies of AOL’s past.

Last week, in AOL’s most recent quarterly report, that was eminently clear, with revenue and earnings below already low Wall Street expectations.

“Nobody likes to show up to these calls and report down numbers in an up market,” said Armstrong in the investor call after the results were released, noting that AOL was in the midst of a long turnaround and “eventually” investors would be able to see results.

Eventually is a good way to put it.

By directing investors’ attention to a set of numbers which say it’s a very profitable company.

The official term for these numbers are “non-GAAP financial measures”. In English, that translates into “accounting you can’t try at home, but which shows off our company in the best possible light.”

And it does! Depending on which set of numbers you want to look at, Demand lost either $4.3 million or $22.3 million on revenues of $114 million in the first half of this year. But Demand’s “Adjusted OIBDA” numbers show a company that made $25.6 million on revenue of $108 million. Much better!

Some investors may balk at these non-GAAP numbers, but Demand, Goldman Sachs (GS) and its other underwriters clearly think there’s a market for them. And there’s certainly a hunger in the tech world for a big, brand name IPO to break the dry spell. You can feel people willing this thing to work.

If Demand did, say, $55 million in OIBDA this year, it would need a multiple of 18 times trailing 12 months earnings to get to a $1 billion valuation. It would need 27x to get the $1.5 billion number that people are whispering to reporters.

Another way to get to $1.5 billion: Project OIBDA of $100 million for 2011, and ask for 15 x on that number. Reminder: $1.5 billion would make Demand worth more than the New York Times (NYT).

Accounting aside, I think the real hurdle for Demand will be making investors comfortable with its reliance on Google to bring in traffic and revenue: Demand relies on Google to bring eyeballs to its content, and Demand relies on Google to turn those eyeballs into money, via AdSense.

If Google (GOOG) changes the way it answers search queries, or overhauls its  contracts with Demand, or even decides to compete with Demand, it could torpedo the company.

The counter to that argument: Every Web publisher is dependent on Google. That’s why all of them spend so much time complaining about the search engine, sucking up to the search engine, and hiring search gurus to help them impress the search engine.

And Google seems to like Demand just fine. All those AdSense clicks are good for Google, and Demand is YouTube’s biggest supplier of content, to boot. So let’s see what investors make of this. We’ll know the answers in a few months.

Meantime, here’s a preview of the Demand roadshow, in the form of an interview Demand CEO Richard Rosenblatt conducted with Kara Swisher a couple of years ago:

]]> http://allthingsd.com/20100807/inside-the-numbers-how-demand-media-will-pitch-a-billion-dollar-ipo/feed/ 4 http://allthingsd.com/20100730/in-ipo-signaling-move-zynga-adds-fancy-cfo/ http://allthingsd.com/20100730/in-ipo-signaling-move-zynga-adds-fancy-cfo/#comments Fri, 30 Jul 2010 21:00:11 +0000 Kara Swisher http://kara.allthingsd.com/?p=31528

Zynga, the fast-growing social gaming site, said it had hired Allen & Co. investment banker David Wehner (pictured here) as its new CFO.

He replaces Mark Vranesh, who becomes Chief Accounting Officer, reporting to Wehner.

The move is yet another indication that the San Francisco-based start-up is prepping for an initial public offering, rounding out its executive team, which is headed by founder and CEO Mark Pincus.

Pincus and Zynga have been quite busy of late, landing hundreds of millions of dollars in venture funding, striking deals with Yahoo (YHOO), Google (GOOG) and international partners such as SoftBank, as the company seeks to expand its distribution from Facebook, the social networking platform where it first took off.

Zynga also recently signed a five-year agreement with Facebook.

Zynga said it made the hire because of its longstanding relationship with Wehner, who has been a managing director at the New York-based Allen & Co. for nine years.

One thing is most clear: Zynga is filling out its executive team to take the business to the next level.

Which is, of course, an IPO.

Here is Wehner’s official bio:

Dave Wehner is joining Zynga from Allen & Company LLC, an investment bank focused on media and technology, where he has worked since 2001. As a Managing Director at Allen, Dave led corporate finance teams responsible for capital raises and M&A transactions with a focus on the firm’s Silicon Valley clients. Dave was also involved extensively with Allen’s principal investing activity, and sponsored the firm’s investments in a number of technology companies including Pandora, Quantcast and StubHub. Prior to joining Allen & Company, Dave worked as the VP Corporate Development for an e-commerce start up and at the technology-focused investment banking firm Hambrecht & Quist (now part of JP Morgan), where he was involved in numerous M&A and financing transactions. Earlier in his career, Dave worked as a strategy consultant with the global consulting firm Monitor Company where he worked extensively throughout Asia.

Dave earned a BS in Chemistry from Georgetown University and an MS in Applied Physics from Stanford University where he was a National Science Foundation fellow.

]]> http://allthingsd.com/20100730/in-ipo-signaling-move-zynga-adds-fancy-cfo/feed/ 0