Non-GAAP reporting by European Digital Companies: a multiple-case analysis

Lyft Inc. is a U.S. based transportation network company that develops, markets, and operates the Lyft mobile app, offering car rides, scooters, and a bicycle-sharing system. Referring to the 2019 quarterly results of Lyft Inc, it has been argued that “Lyft Inc. is no longer a start-up, but it still loses money like the best of them” (Griswold, Quartz, 2019). Thus, Lyft Inc. reports a Net Loss of $1.1 billion as reported in the following scheme. The company in its announcement of first quarter results moved the attention from the $ 1.1 billion lost under Generally Accepted Accounting Principle (GAAP) to some adjusted figures. Indeed, Lyft Inc. attributed the bulk of its quarterly loss to $894 million in stock-based compensation and related payroll-tax expenses triggered by its March IPO. Specifically, the company reports a “Non-GAAP Net Loss” of $ 212 million by taking out these costs. In this regard, it can be helpful looking at the First Quarter Highlights released by Lyft Inc. in its results quarterly announcement. As reported in the following box, the second point is dedicated to the explanation of the reported loss and starts focusing on the stock-based compensation ($894 million) to which Lyft Inc. attributes the reported loss. Moreover, looking at all the main aspects of its quarterly announcement, it is observable that four out of six are focused on Non-GAAP measures. Additionally, Lyft Inc. is not the only company that try to win over investors using alternative financial measure. Indeed, before the IPO, Uber Technologies Inc. calculated its quarterly results coming up with a Non-GAAP metric called “core platform contribution profit”: “Core Platform revenue less the following direct costs and expenses: (i) cost of revenue, exclusive of depreciation and amortization; (ii) operations and support; (iii) sales and marketing; (iv) research and development; and (v) general and administrative”. Thus, the company reported an operating loss of $940 million instead of $3 billion. Beside Uber Technologies Inc., it is worth citing one more case. WeWork Cos., the shared office company, filed for an IPO in December once it created a Non-GAAP measure called “community-adjusted EBITDA”. This measurement changes the financial results of the company from a net loss of $1.9 billion (using GAAP) to a profit of $467 million using the Non-GAAP metric. According to S&P Global Intelligence, the GAAP loss ($1.9 billion) would be the second largest in history among U.S. start-ups IPO, between Uber and Lyft. Previous cases provide an idea on the consolidated use of nonstandard metrics (Non-GAAP measures) under the perspective of the Non-GAAP reporting (Marques, 2017; Parrino, 2016) and on their crucial role in communicating financial results. In fact, it seems that companies have become aware that the income statement and the balance sheet provided reling on the GAAP are no longer useful to capture the investors’attention, expecially when firms operate in IT and digitalized industries. In this scenario, digital companies seem to disclose more and higher quality information (Gu and Li, 2003; Bozzolan et al., 2003; Oliveira et al., 2006; Bini et al., 2019) and, for example, they are more likely to communicate Non-GAAP earnings (Bhattacharya et al. 2004). Thus, the Non-GAAP reporting (Parrino, 2016) becomes a relevant issue in the recent years in order to draft significant corporate information to disclose to all stakeholders especially by IT and digitalized companies (Haegeman et al., 2013; Routley et al., 2013; Sathananthan et al., 2018; Sousa and Rocha, 2019, Timmers , 1998). In the light of previous considerations, the aim of this study is to analyses the digital companies’ behaviour in terms of Non-GAAP financial disclosure describing the contents and the intra and inter-firm comparability assuring a comphrensive disclosure to stakeholders among which investors. To this end, this study analyses the top digital European companies’ Non-GAAP financial disclosure from 2016 to 2018. Particularly, through a qualitative method (Blumberg et al., 2014; Hair et al., 2003; Yin, 2014), our research focuses on a sample composed of companies included in the top digital European companies, showing interesting results for academic and practical communities.