Groupon's Problems With Math Continue

By Chuck Sudo in News on Mar 31, 2012 6:00PM

Image Credit: Seth Anderson

Business analysts are once again criticizing Groupon after the online daily deal pioneer disclosed a regulatory filing adjusting their fourth quarter earnings statement Friday, after markets closed.

The cause for the filing was Groupon's problems with their internal controls. Groupon's auditor, the firm of Ernst & Young, discovered the company hadn't set aside enough cash for customer refunds related to higher-priced deals being offered by Groupon, with higher refund rates. The amended filing reduced their operating income by $30 million; they now report a fourth quarter loss of $65.4 million.

Groupon Chief Financial Officer said in a statement:

"We remain confident in the fundamentals of our business, as our performance continues to highlight the value that we provide to customers and merchants.”

But Morningstar analyst Rick Summer said there's cause for concern.

“It is troubling if you have accounting irregularities out of the gate,” Summer said, referring to the first restatement after Groupon started selling its shares to the public in November.

“This is a big company with blue-chip investors, blue-chip investment banks, blue-chip accounting firms and what was deemed to be a blue-chip management team.”

Groupon stock fell in after hours trading to a value of $17.15 per share. The filing continues Groupon's problems with how it values itself. In the weeks leading up to its initial stock offering last October, the company had to file an amended IPO Prospectus that offered a more detailed rationale for how it measures profitability. Its financial reporting problems, large employee base and high marketing expenses have earned the scrutiny of stock market analysts and the skepticism of investors.