The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary.

Originally posted Tuesday, 4 October 2022
Opendoor Follows WeWork Into Non-GAAP Land

Consider loss-making mobile-games company Skillz Inc., which claimed last year to be profitable on an adjusted ebitda basis, when adjusted for the cost of acquiring new customers. Yet user acquisition marketing expenses were almost two-thirds revenue that year. When Skillz sought to reduce marketing spend in recent months, its revenue plunged, and so has the stock. (Skillz has said the metric helps investors understand “the value of existing users on the system.”)

Adjusted ebitda is especially problematic because companies have huge discretion about what to include. Last week, Singapore-based Grab Holdings Ltd. vowed to break even on an adjusted ebitda basis by the latter half of 2024, but its definition includes more than half a dozen add-backs. This isn’t unusual.

Great article on one of my favorite accounting / financial statement analysis red flags.