Breakout

Groupon’s Earnings Restatement: Broken Business or Buying Opportunity?

Breakout

There's an old saying that goes, "Burn me once, shame on you. Burn me twice, shame on me." Today, it applies directly to Groupon (GRPN) as shares of the newly listed leader in the budding daily-deals online coupon business are down 10%, scorching investors for the second time in as many quarters after announcing a revision to its previously reported results.

As the company explains in its press release (which dubiously came out after the market closed on Friday) the latest hit is the result of a "shift in its business mix" to high-end, higher-priced products. Generally speaking, this is a good development and part of the reason why Groupon left its existing guidance intact for the first quarter. The downside, however, is that bigger deals, require bigger refunds and that's the rub, or at least the source of what could be many rubs.

''That's a big problem,'' my colleague Aaron Task says in the attached video, adding that because the company has only been public for five months, its credibility is subject to even closer scrutiny. "You gotta get that right, that's when you should have everything locked down,'' he says, while predicting that the stock will be headed even lower.

As it stands now, the stock has been penalized more than $1 billion for what is essentially a $100 million revenue restatement from last year, a 10% beating that is arguably too harsh for the 4-cent per share crime.

Even so, the way forward for Groupon has now been made even more difficult, as no less than four firms have downgraded the stock and/or estimates this morning while at least five law firms have announced (e.g. advertised) their intentions to sue on behalf aggrieved shareholders. There's also the issue of a big insider lock-up period expiring at the six-month mark, which could see some heavy selling and further weigh on shares.

"They're finding their way as a public company," Task says, raising the question whether this $10 billion business might have ''rushed themselves to market'' before they were really ready to play in the big leagues.

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