Groupon shares dive on another accounting misstep
April 3, 2012 (USA TODAY) Groupon keeps rolling out daily deals, but skepticism is growing about the young company's ability to manage its growing pains and competitors. And those concerns are taking a toll on its stock price.
Groupon shares plummeted 17% Monday to close at $15.28. That's well below the $20-a-share price it commanded in its initial public offering and about half its 52-week high of $31.44.
The deals giant on Friday revised lower its fourth-quarter earnings, saying it hadn't set aside enough money for customer refunds. The company has increased offers on Lasik eye surgery and laser hair removal, which carry higher prices and refunds.
Despite investor misgivings, Groupon remains "confident in the fundamentals" of its business, says CFO Jason Child.
Groupon spokesman Paul Taaffe added that the company understands that "there is a certain amount of skepticism in the market" given the company's history.
But he said such accounting issues are just part of being a business that is growing very quickly. Groupon's revenue nearly tripled in the fourth quarter from a year earlier, and its active subscriber base grew fourfold to 33 million. "Every three months, Groupon is a different company," he said.
But Groupon's earnings restatement raises questions about the ethics of the company in financial matters, says Forrester analyst Sucharita Mulpuru. "They are obviously trying to inflate their numbers."
It wouldn't be the first time. Since the company filed to go public, it has twice been forced by the Securities and Exchange Commission to address accounting concerns.
In one case, the company did not account for all its marketing costs and reported a profit when it should have reported a loss.
Later, Groupon had to restate the way it accounts for revenue.
Groupon also counts on some customers not actually using the offers or refunds, Mulpuru says.
Groupon raised $805 million last November in its IPO. The company has yet to post a profit.
In addition, the deals pioneer is under increasing pressure from the likes of Google, LivingSocial and countless upstarts because its business model is easy to replicate. This increased competition is forcing Groupon to go after new businesses.
"Groupon's numbers show that it's going to be tough to make it profitable," says IDC analyst Karsten Weide. "Everyone and their German shepherd got into this business."