Groupon backtracks, lowers Q4 2011 revenue estimates

Groupon has been forced to revise its fourth quarter earnings report, lowering revenue and net income. However, there might be more reason to worry.
Written by Rachel King, Contributor

Groupon has had incidents with revisions and questionable financial records in the past, but revising the first quarterly financial results you've ever posted while public doesn't offer a great impression.

The Chicago-based daily deals giant has revised its fourth quarter 2011 results.

Now, the revisions consist of a reduction to fourth quarter 2011 revenue by $14.3 million. Increased Q4 operating expenses also led to reduced operating income by $30.0 million, net income by $22.6 million, and earnings per share by $0.04.

In February 2012, Groupon reported a fourth quarter net loss of $42.7 million, or 8 cents a share (statement). The Non-GAAP loss was 2 cents a share on a revenue of $506.5 million.

Wall Street was expecting Q4 results with a profit of 3 cents a share on revenue of $475 million.

For the outlook, Groupon is predicting a revenue of $510 million to $550 million at the end of Q1 2012. Those figures haven't changed, nor have numbers previously reported operating cash flow.

Groupon reps tried to play off the errors in a release, explaining that they are "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."

Nevertheless, there is something more worrisome in the statement, as pointed out to me by ZDNet's Ed Bott:

In conjunction with the completion of the audit of Groupon’s financial statements for the year ended December 31, 2011 by its independent auditor, Ernst & Young LLP, the Company included a statement of a material weakness in its internal controls over its financial statement close process in its Annual Report on Form 10-K for year ended December 31, 2011. The Company has been working for several months with another global accounting firm in preparation for reporting on the effectiveness of its internal controls by the end of 2012, as required following Groupon’s initial public offering last year. The Company continues to implement process improvement initiatives and augment its staffing, and is expanding the accounting firm’s engagement scope to address the underlying causes of the material weakness. Further discussion of the material weakness can be found in the Company’s Form 10-K, filed today with the SEC.

Of course, we don't know to what this "material weakness" is exactly referring. Nevertheless, that's not a reassuring statement to investors and customers -- especially considering how shaky a reputation Groupon has developed in the last several months since declaring an initial public offering last June.

Groupon will come back to discuss 2012 first quarter earnings on Monday, May 14th.


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