Tuesday, 3 April 2012

Issues with Groupon Continue


There has been a slew of controversy surrounding Groupon since its IPO this past November. At that point, many people were in awe at how this new and unprofitable ($420m loss in 2010) company could attain a near 17 billion dollar valuation. But, more important than this valuation were the accounting issues surrounding it at the time. In a portion of its S-1 reserved for quarterly results, it had included the total number of customers ever buying a Groupon leading to many complaints that investors had been misled.

This past Friday, Groupon is again showing accounting issues as it revised its first quarterly earnings report and widened its fourth quarter loss of $37million by an additional $22.6million. This sent the stock plummeting 17% on Monday and has led to another wave of bad press for the Daily Deals distributor. What was the reason for this large revision? The company was unprepared for the number of consumers deciding to refund their purchase.

Two opposing views of this revision are currently being proposed. The first is that its current issues stem from the rapid growth that the company has experienced. This argument that the company is seeing “growing pains” leads many to believe that the company can and will solve these accounting issues. Therefore, Groupon remains a very relevant force in the market. The second argument claims that these accounting issues are clear signs that the company lacks internal control. Its inability to manage refund risks adds to the argument that the company lacks a long-term strategy. Combining this with the continuous doubts that Groupon can reach profitability has won over many investors who are losing faith in the company.

No matter which side you believe, it is clear that Groupon will not be able to operate if it continues to experience these problems, and will need to take its accounting much more seriously in the future.

-Kyle Cameron

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