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On Friday, Groupon published a surprise revision of its fourth quarter results that showed an unexpectedly huge number of refunds. The revision drew instant response from the market and led to an 8.5% drop in the company’s stock during after-hours. The revision announced that the previously announced results were reduced by $14.3 million and the net income reduced by $22.6 million, resulting in 4 cents a share.
A statement from the company read, “The revisions are primarily related to an increase to the company’s refund reserve accrual to reflect a shift in the company’s fourth quarter deal mix and higher price point offers, which have higher refund rates.” Apparently the company did not have any plan in place or funds set aside for customer refunds.
Groupon’s accounts had been questioned by the SEC, and the company says it has hired Ernst & Young to oversee its operations.
Last year Groupon completed one of the largest Internet IPOs since the debut of Google, but the business model of the Chicago-based company had been consistently questioned by analysts.
In fact, last year, the Susquehanna Financial Group and daily deal industry tracking firm Yipit had done a survey that found only 10 percent of the surveyed merchants considered running an instant deal with Groupon. However, Groupon had banked on its instant-deal service known as Groupon NOW as its source of future growth.
Though on the positive note, and expecting Groupon shares to outperform by the end of the year, Jeffrey Houston, an analyst at Barrington Research Associates had opined to Reuters that “I suspect that the stock will be very volatile for the next six months or so…”
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Groupon’s new revision only bolsters the doubts of the analysts who were skeptical about the company’s business model. The admission that a company of this size that depended upon daily deals and instant deals had not set aside any funds for customer refunds came as a bigger surprise than the revised accounts.
