Groupon’s Stock Tanking and Lawyers Circling After Issuing Correction

Groupon’s stock is down by as much as 13 percent this morning after announcing last Friday that it incorrectly calculated revenue in the fourth quarter.

Groupon’s restatement is only the latest financial debacle for the company, which had to change the way it accounted for revenue before it went public, as well.

This time it seems investors are less willing to shake off the restatement, and are having a hard time buying that it was a simple miscalculation on the company’s part because of a higher number of returns during the holiday period.

The company said on Friday it had to increase its refund reserves due to offering more higher-priced deals, which are more likely to be refunded by customers.

In midmorning trading, the company’s stock is down $2.17, or 11.8 percent, to $16.20. On Friday, the stock tumbled about 7 percent in after-hours trading.

The change in revenue was significant.

Groupon lowered its fourth-quarter revenue by $14.3 million, and its net income by $22.6 million. The company, which is trying to prove that the daily deals model is sustainable, is now reporting a wider net loss of $64.9 million on revenue totaling $492 million.

On Friday, the company also reported that an independent auditor issued a statement that it had a “material weakness” in its financial controls. It has been working with an accounting firm for several months, and will issue a report on its controls by the end of the year.

Following the restatement, multiple lawyers have issued releases looking for any wrongdoing. Specifically, they are investigating whether Groupon knew about the refund spike or the material weakness when they filed their registration papers and went public.

Mark Mahaney, a Citigroup analyst, said that Groupon’s growth is “extremely impressive,” and that the company has established a clear platform potential. But, he added, “with hyper-growth comes unusual execution/organizational challenges. GRPN management and investors are learning this the hard way.”

Other companies in the daily deals space, like Amazon and Google, have the protection of operating within a larger company, affording them more leeway to make blunders. LivingSocial, which is the second-largest provider, is privately held and has no immediate plans to go public.

Mahaney reaffirmed his “neutral” rating and $24 price point.


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