Skift Take

As the once-hot flash sale market rapidly cools, Groupon is edging ever closer to being this decade's or even -- heaven forbid --

Groupon Inc, responding to regulators’ inquiries into a controversial revision of its fourth-quarter results and handling of refunds, has promised to shore up disclosure but stopped short of agreeing to outline the performance of individual products from travel to concert deals.

The U.S. Securities and Exchange Commission asked Groupon in August to provide a wealth of information and explain its reporting on a plethora of financial metrics. Groupon’s response was made public on Friday, underscoring the extent to which the commission continued to probe into its internal accounting months after the Internet deals leader went public.

Many of the SEC’s queries revolved around how it estimates customer refunds under the “Groupon Promise”, under which subscribers that change their minds get their money back in full.

An unexpectedly large number of refunds for fast-growing, costlier new services such as Groupon Getaways helped prompt the results revision in April, and is considered by some analysts to be a major risk to the company’s cash flow.

“The maximum amount of future or potential refunds, or total unredeemed vouchers, is not a metric that the company currently evaluates,” the company said in its Friday filing, portions of which were redacted.

“The company is able to make reasonable estimates of potential future refunds at the time the vouchers are purchased without tracking the amount of total unredeemed vouchers outstanding.”

The daily deals industry leader has grappled with myriad accounting problems since its highly touted 2011 debut, highlighting a need for more financial sophistication on its board, analysts say.

Once the consumer dotcom darling of Wall Street, Groupon stock has shed over three-quarters of its value since it began trading at $20 and on Friday, it lost another 8 percent to hit an all-time low of $3.68.

In April, it revised its fourth-quarter results, resulting in a bigger net loss and lower revenue than it had previously reported due to higher-than-anticipated refunds on deals. The company admitted at the time that it had a “material weakness” in internal controls over its financial statements.

Groupon’s “accounting organization and its financial statement close process were not able to adequately keep pace with the rapid growth of the Company,” it said on Friday.

“The year-end financial statement close process was further impacted by a number of operational and organizational changes in the fourth quarter of 2011.”

Reporting by Edwin Chan; Editing by Richard Chang. Copyright (2012) Thomson Reuters. Click for restrictions.


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Tags: deals, earnings, flash sales, groupon

Photo credit: The Groupon smartphone app is displayed on a Motorola Droid Bionic cell phone in Denver November 4, 2011. Rick Wilking / Reuters

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