What happened to Groupon? This has been a terrible past week for deal of the day website. The stock plunged 17% as the potential for an SEC probe rattled the share prices. Groupon had the largest IPO since 2004, when our buddies at Google had a $1.7billion dollar initial public offering.
So what happened, well first let us hope that this is not another Enron or another episode of corporate malfeasance. Initially the company came under scrutiny when before their IPO they revised their financials with the Securities and Exchange Commission. The company came recently under scrutiny when an auditor discovered that Groupon did not have adequate reserves to cover potential customer refunds. Groupon was also cited as having material weaknesses in their financial controls.
Higher than expected numbers of returns for higher ticket items, may show that Groupon isn’t adequately positioned to handle higher ticket items such as cruises or vacations. This is partly the reason for the large accounting change and restatement of the financials. After the bell on Friday, Groupon was forced to restate their financials with revenue $14.3 million dollars less for the 4Q 2011.
On Monday, the stock was downgraded by two brokers. One analyst predicted that having to increase reserves for customer refunds and financial mishaps, Groupon is poised to collapse. There are many law firms salivating at the possibility of attacking Groupon while they are down. Be ready to see an onslaught of claims against Groupon for the losses they suffered as a result of their restatement and lack of financial oversight.
What do you think; will Groupon be around this time next year? It certainly does not make me feel warm in fuzzy inside to start investing with them!