Oh Groupon, let me count the ways. The daily deals leader never fails to disappoint, even while creating the illusion of success.
The company delivered profits beyond analysts’ expectations yesterday and its stock price promptly tanked as the money men looked behind the headline numbers and into the innards of its financials. It was not a pretty picture. Its share price closed at $7.55 but collapsed immediately after the results came out on after-market trading and was only lurking around $6.25 when Grok snuck a peep.
Revenues from core business actually shrunk — almost certainly a function of having cut the guts out of its acquisition costs since the start of the year. (On a side note, it never ceases to amaze Grok how finance directors are pathologically incapable of understanding the causal link between acquisition costs and, you know, acquisitions.) Forward earnings expectation for the fiscal year have also been wound in dramatically over the last 90 days from a profit of 31 cents a share to a loss of 5 cents a share.
Questions have once again been asked about the company’s accounting — and Groupon is an outfit that has no more chances left on that front.
Grok recently relayed some of <i>Venture Beat's</i> analysis where one of its contributors — Rocky Agwaral — questioned its new Groupon Goods business unit’s revenues. Groupon pretty much accused the author of that report of being barking mad.
Now, <i>Business Insider</i> has revealed an analyst report by Ken Sena — previously a Groupon advocate who, according to BI editor-in-chief Henry Blodget, is downgrading Groupon “in a startling note that makes it sound like he thinks Groupon might have committed fraud”.
Here’s what Blodget said is the key part of Sena’s note:
“We are reducing our rating given our concerns over the transparency and disclosure of the 1P [first-party] Goods business, coupled with signs of deterioration within the core daily deals business.
“New information has emerged related to the company’s Goods category that makes us question the composition of the 1Q12 North America revenue beat…
“In addition, billings data for North America and International are trending well below consensus, indicating a sequential q/q decline vs. Street expectation for high single digit billings improvement.”
Jump across to <i>Business Insider</i> to read all the gory particulars. Basically, Sena’s analysis suggests much of Groupon’s much heralded Q1 growth did not come from improved deal targeting and improved deal density as the company claimed but rather from the launch of Groupon Goods which books its revenues differently to the way Groupon coupon revenues are booked. That was the point of the earlier criticism in Venture Beat as well.
Blodget noted: “In Groupon’s most recent filing with the SEC, Sena says, Groupon appears to have contradicted what it said on its conference call. Specifically, the company said that the Q1 revenue strength was "primarily" driven by the launch of the Goods business, which accounts for some revenue differently than the core coupon business.”
In his Venture Beat column, Agwaral estimated that Groupon overstated its Q1 revenues by between 5 and 8 per cent because of the way Groupon Goods was acquitting its revenues.
At the time Groupon described the author as being so far off base that he invited ridicule. At least he now has analysts Ken Sena to keep him company.
Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.