Web-site companies are increasingly inflating reported revenue by including the value of banner advertising space swapped for space on other sites in non-cash transactions. USA Today found that some firms distorted their financial statements using the tactic. A quarter of the $5m revenue reported last year by online chat site Deja.Com, which is registered to sell stock to the public, came from such barter agreements. And barter accounted for less than 10% and 6%, respectively, of revenue reported by web portals Yahoo and Cnet, in their most recent earnings statements.
Web site firms that book barter revenue must also book a corresponding expense for the advertising they get in return. But such firms are frequently valued by investors on revenue, revenue growth or gross profit with advertising expenses excluded. Internet.com, which operates technology-related web sites excludes barter revenue on the rationale that the advertising space bartered would not otherwise have been sold and thus has no value.
CEO Alan Meckler said that this hurt Internet.com stock because competitors including barter appeared to be doing better. Christopher Cardell, Internet.com’s president estimated many e- media companies booking barter have sold only 30% or their advertising space, he branded the tactic an abuse. George Neble of Arthur Andersen’s e-commerce accounting unit told USA Today that accounting rules governing barter have been outpaced by the internet.
