Groupon's 'accounting mistakes' send shares tumbling

The market has reacted badly to Groupon's $65m fourth-quarter loss. That's not the special offer its shareholders wanted...

by Dave Waller
Last Updated: 08 Aug 2013
Voucher firm Groupon has suffered a string of wobbles since going public in November. And now here’s another one - Groupon has revealed it has apparently underestimated operational costs and the amount of money needed to be put aside for customer refunds. It lowered its revenue for the last three months of 2011 by $14.3m, to $492.2m.

As you can imagine, this news caused its share price to fall – nearly 17% in New York overnight on Monday, to $15.28. That’s what tends to happen when you put your hand up and say ‘hang on, our revenue and earnings were lower than we thought’. Especially when, despite all the hype around your recent IPO, you were already reporting a loss of $42.7m.

There’s more. The company also admitted to ‘material weakness’ in its internal controls. Surely that’s not going to sound like the most soothing of music to the ears of its new shareholders either. Sounds like they'll need a discount massage now more than ever.

It’s all looking like an eye-opening lesson in the perils of going public and growing too fast. Groupon made its stock market debut in November at $20 per share and peaked above $31 a share. But it has since perfectly fitted the pattern typical of a dotcom flash in the pan: it’s failed to make a profit despite revenue nearly tripling in a year. How do you actually make money out of these amazingly popular tech ideas? Correct us if we’re wrong, but surely that’s a question that’s been asked before.

Of course you can forgive an isolated error, but these things keep coming. Ask bakery owner Rachel Brown, who ended up having to shell out £12.5k to take on extra staff to help her fulfill orders for 102,000 cupcakes that came via Groupon. Doh. Soon the Advertising Standards Authority was weighing in over ‘misleading’ ads. Doh. And then, only a few weeks ago, the OFT gave Groupon three months to improve the way it operates, after specific concerns over ‘pricing, advertising, refunds, unfair terms, and the diligence of its interactions with merchants’. Do-diddly-oh. Groupon agreed to change to ensure honesty with customers.

After all the offers it’s given its punters, maybe Groupon needs to offer itself a chance of survival – by sorting these things out.

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