Even when Groupon tries to explain itself, the company can be confusing.
The daily-deals provider said today that its fourth-quarter financials, as disclosed last month, were weaker than previously reported.
The first question that a reader is likely to ask is: Why?
Here’s what the press release said:
“The revisions are primarily related to an increase to the Company’s refund reserve accrual to reflect a shift in the Company’s fourth quarter deal mix and higher price point offers, which have higher refund rates. The revisions have an impact on both revenue and cost of revenue.”
While this is clearly not intended for the average Groupon customer, can we get just a little more clarity?
Let’s try to unpack it.
Groupon needs a refund reserve because a certain percentage of its daily deals will not be used and instead get refunded, meaning Groupon has to return the associated funds.
The shift in “deal mix” and higher priced offers suggests that more revenue is coming from more expensive deals, which makes sense because last year the company introduced Groupon Reserve, a service for upscale offers. These have included a five-course meal for $99 at Whist in Santa Monica and a three-course meal for $70 at the Italian restaurant Bice in New York.
Groupon is also telling us that, whether it’s because of buyer’s remorse or some other reason, high-end deals get refunded more than the average coupon.
That brings us to the “impact on revenue and cost of revenue.” Here, Groupon is saying that not only is the company losing the money it thought it had, but marketing costs are higher than expected because the company had to spend the same amount of money to attract fewer customers (since some of them aren’t customers after all).
We haven’t even gotten to the “material weakness” in its internal controls that Groupon also disclosed today. Is this related to the financial restatement? And if not, what else are we not aware of? For a company that’s had more than its share of stumbles since filing to go public last year, this isn’t helping.
And one more thing. Groupon said the revisions reduced net income in the fourth quarter by $22.6 million. There’s one problem with that: Groupon didn’t have net income in the quarter. It had a $42.7 million loss. So, the company actually lost an additional $22.6 million.