Commentary

Groupon Reveals Accounting Error

Social buying juggernaut Groupon stumbled again last week with Friday’s downward revision of its fourth-quarter revenue from $506.5 million to $492.2 million. While this is a relatively modest decrease of 2.8%, Groupon also revealed that its fourth-quarter loss was $22.6 million more than previously stated.

Both errors were due to what auditor Ernst & Young described as a “material weakness in its internal controls,” which somehow failed to factor in more refunds  to customers, suggesting that the company’s current accounting methods aren’t able to keep up with its innovative business model.

Groupon said more customers were seeking refunds because it was conducting more sales of high-end items and services, which consumers are more likely to return. This can lead to shortfalls if Groupon isn’t able to collect reimbursement from merchants whose products or services are returned by dissatisfied customers. Groupon told the press it is working with another accounting firm besides Ernst & Young to get to the bottom of the accounting error.

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This isn’t the company’s first public accounting mistake. Last year Groupon revised its pre-IPO revenue figures downward by half in response to questions from the Securities and Exchange Commission. Its IPO hit another bump when chairman Eric Lefkofsky boasted of its likely profitability during the “quiet period” before the company went public, earning another scolding from the SEC.

The company’s recent problems are reflected in its stock price, trading at $16.23 at the time of writing -- down 19% from its IPO price of $20.

When it comes to publicly-traded social media companies, Groupon isn’t alone in its stock market woes. Pandora is now trading at $10.17, down 36% from its IPO price of $16. However there are success stories too: LinkedIn, which debuted at $45 per share, is now trading at $102.39.

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