Groupon shares plunge after restatement

By msnbc.com staff and wires

Groupon shares fell 17 percent Monday after the online couponing company raised new worries about its accounting practices by with a late Friday revision of its quarterly results.

Groupon shares fell $3.10 to $15.28 after the company was forced to lower its revenue and earnings figures to set aside more money for refunds to customers.

Some analysts are wondering if Groupon, which began trading publicly less than five months ago, will be able to leave behind its growing pains.

"We believe Groupon is now a 'show-me' story, where a company's ambitions are higher than the level of its internal planning and controls," Jordan Rohan, an analyst with Stifel Nicolaus, said in a note to investors. He downgraded the company's stock to "Sell," from "Hold."

On Monday, it was disclosed that Groupon agreed to pay $8.5 million to settle nationwide litigation alleging the expiration dates on its coupons are illegal.

A group of consumers had sued, saying Groupon "effectively creates a sense of urgency" among consumers to buy its vouchers by offering "daily deals" for a short amount of time, usually 24 hours.

"Consumers therefore feel pressured and are rushed into buying the gift certificates and unwittingly become subject to the onerous sales conditions imposed," including a ban on cash refunds and a requirement that gift certificates be used in a single transaction, the lawsuit said.

Groupon denied liability in agreeing to settle, according to settlement papers.

The settlement covers consumers who received Groupon vouchers between November 2008 and Dec. 1, 2011. Those covered by the settlement can redeem their vouchers past the expiration dates, or recover from the $8.5 million settlement fund. The settlement requires approval by U.S. District Judge Dana Sabraw in San Diego.

Founded in November 2008, Groupon pioneered the online daily deals market, which offers subscribers deep discounts on everything from restaurant meals to tech gadgets to weekend getaways if enough people buy in. It sparked many copycats, including LivingSocial, Google and Facebook, though the latter ended up abandoning the effort.

In terms of mere numbers, the financial restatement doesn't amount to much. The revision lowered the company's fourth-quarter revenue by about 3 percent, to $492 million. And it widened its net loss by 4 cents, to 12 cents per share. Groupon's chief financial officer, Jason Child, said the company remains confident in its business.

But Friday wasn't the first time that Groupon has had to change its accounting. Last year, the company got in trouble for including as revenue the share it had to turn over to merchants running the deal. After federal regulators questioned the fuzzy math, the company counted only the money it got to keep and reduced its reported revenue by roughly half. All that preceded its initial public offering in November.

Groupon spokesman Paul Taaffe said Monday that the company understands that "there is a certain amount of skepticism in the market" given the company's history.

But he said the company's fundamental business is strong, and 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.

Groupon has evolved quickly from its roots offering mostly restaurant and spa deals from local merchants. It now curates vacation packages to such places as Egypt and the Horseshoe Casino in Robinsonville, Miss., and it sells consumer products such as memory foam mattresses and noise-canceling headphones.

Its deals aren't really daily any more, either. Subscribers can sign up for several email lists from Groupon, receiving multiple deals a day. They often have several days to decide whether they want to buy them.

More recently, with products such as an online scheduling tool for local merchants, Groupon has also shown that it wants to be an e-commerce hub for small businesses.

Several analysts are giving Groupon the benefit of the doubt even as they note shareholder frustrations. Dough Anmuth of JPMorgan said he doesn't believe the restatement shows that Groupon's business model is weakening.

"Instead we believe they reflect Groupon's dynamic deal mix and the company's extremely rapid growth in a very short amount of time," he said.

Scott Devitt of Morgan Stanley, the main underwriter for Groupon's IPO, called the announcement a "mild hiccup in Groupon's compelling long-term story."

(Reuters and The Associated Press contributed to this story.)

Groupon fell sharply after the company increased its previously reported Q4 net loss and cut its revenue. With Rakesh Agrawal, reDesign Mobile analyst, and CNBC's Herb Greenberg.

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