As Facebook IPO IPO mania grows, troubles at Groupon (NASDAQ:GRPN) mounted this week as the Wall Street Journal reported on Monday that the SEC was looking into the troubled company's recent revision of financial results. And while the probe is only in the preliminary stages and no decision has been made to launch a formal investigation, Groupon (GRPN) investors have already taken another beating.
Specifically, Groupon (GRPN) sank 16.89% to $15.27 on Monday and closed on Thursday at $14.18. According to Google Finance, Groupon (GRPN) is also down 31.27% since the start of the year and down 45.69% since its November debut.
Hence, many analysts are beginning to wonder whether or not Groupon (GRPN) was incubated and hatched too soon as a public company or they are making even worst conclusions. Just consider the following 10 signs:
- Groupon's business model and the company itself has been called a disaster and despite being a daily-deal industry pioneer, that are now at least 500 other daily deal imitators out there vying for a piece of the company's daily-deal action.
- Even worst, Groupon's IPO documentation had led some overly critical analysts to conclude that the company exhibits the hallmarks of a giant Ponzi scheme.
- Groupon (GRPN) had also been forced to update its IPO filing after both regulators and analysts took issue over its use of a non-standard accounting metric called Adjusted Consolidated Segment Operating Income (ACSOI) that was allegedly being used to present a misleading metric of profitability.
- Right before the Groupon IPO, a large cash payout was made to the company's founders and early backers. In fact, the payout was so large that some critics contend the company was technically insolvent at the time of its IPO.
- Last Friday, Groupon (GRPN) reported a "material weakness" in financial controls and also announced that 4Q2011 sales were actually lower by $14.3 million (to $492.2 million) than previously reported thanks to higher refunds to merchants.
- Some analysts are wondering why Groupon's auditor, Ernst & Young LLP, did not point out any concerns sooner. Remember Arthur Andersen and Enron?
- Groupon (GRPN) is growing so fast that it's having problems keeping all of its systems in order plus keeping in compliance with various consumer laws.
- In 2011, Groupon (GRPN) had to temporarily suspend use of its discount vouchers for alcohol at participating restaurants after the Massachusetts Alcoholic Beverages Control Commission notified the company that it was in violation of a state law that prohibits the discounting of alcoholic beverages.
- In March 2012, Groupon (GRPN) was found guilty of "widespread" breaches of UK consumer protection laws that related to issues such as pricing, advertising and unfair terms attached to its daily deals. The company was ordered to clean up its practices within three months.
- After the unexpected revision of results, Groupon (GRPN) announced an $8.5 million settlement of nationwide litigation alleging the expiration dates on its coupons are illegal. Specifically, it had been alleged that the company had violated laws such as the federal Credit Card Accountability Responsibility and Disclosure Act, which prohibits the sale of gift cards that expire in fewer than five years.
At the end of the day, investors and traders alike should remember what Benjamin Graham, the author of The Intelligent Investor and a mentor of Warren Buffett, had said about IPOs in that they were better left to seasoned rather than beginner investors. Graham had died in the 1970s - long before the dot.com crash or the daily deals industry or social networking over the Internet was even thought of.
Otherwise and if you can't resist owing or trading relatively new stocks like Groupon (GRPN) and soon Facebook, NextCandle.com's directional stock predictions can help you with your trading - just don't expect our stock forecasting tool to predict any accounting irregularities or the outcome of any SEC probe!
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