Groupon Inc. has reported a “material weakness” in their fourth quarter results, which is worse than previously stated because of a higher number of refunds to merchants. The revisions had reduced revenues in the period by $14.3 million to $492.2 million. Groupon reported $506.5 million last month. Groupon has been notorious for finding errors in their financial statements filing for their IPO in June. About two months after their prospectus, Groupon had abandoned a controversial accounting method for operating income after a review by the SEC.
After the announcement, Groupon shares fell 5.9% to $17.29 in extended trading yesterday after the announcement. Groupon’s stock has been down 8.1% since the IPO in November, but they climbed 3.8% earlier in the day. Groupon has been working for several months with Ernst & Young LLP to report on the effectiveness of internal controls by the end of the year.
Groupon said that the revision accounts for an increase in higher-priced deals, which is most likely to be refunded by customers. Groupon Reserve is a service for upscale deals such as five-course meals at expensive restaurants. The higher refunds are widening Groupon’s net loss by $22.6 million.