(This is an excerpt from an article I originally published on Seeking Alpha on March 30, 2012. Click here to read the entire piece.)
After traders packed up for the weekend, Groupon (GRPN) issued two warnings during the evening of March 30th.
First, Groupon discovered it under-estimated its refund rate for the previous quarter. As a result, the company revised downward its revenue and earnings numbers:
{snip}
This means GRPN actually had a greater loss for the last quarter. GRPN claims in its 10K filing released in parallel with the restatement that it has fixed its refund model to include a change in deal mix and higher priced offers. {snip} Refund dynamics will get the spotlight as a source of potential uncertainty in GRPN’s revenues and profits.
Second, GRPN warned that it “..identified a material weakness in [its] internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.” The details are included in the company’s 10K filing. {snip}
{snip}
Until this issue is resolved, the implied risk premium for GRPN grows larger. GRPN’s stock dropped as much as 10% in after-hours trading. Curiously, GRPN’s stock rallied into these revelations.
{snip}
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on March 30, 2012. Click here to read the entire piece.)
Full disclosure: long GRPN puts (as of original writing only)