Groupon adds $22.6 million to quarterly losses

Influx of refunds and a shift to higher price points

Groupon is revising its quarterly financial results due to an influx of refunds and a shift to higher price points, adding $22.6 million to its previously reported $42.7 million loss, plunging it further into the red. Alongside the $64.9 million loss, Groupon is now reporting revenues of $492.2 million, down $14.3 million from the £506.5 million initially reported in February for the quarter ending December 2011. The firm’s revised results for its first quarter as a public company is likely to exacerbate concerns over the daily deals and group buying sector, with long-time detractors pouring scorn over Groupon’s sustainability as a business.

However, Groupon’s forecast for its current quarter remains unchanged, with revenues expected to come in at between $510 million and $550 million. CFO Jason Child remains bullish about the company’s prospects, saying: “We remain confident in the fundamentals of our business, as our performance continues to highlight the value that we provide to customers and merchants.”

Despite Child’s defence, Groupon’s shares fell more than 10% in the aftermath of the revision, again casting doubts over the firm’s financial prospects and the strength of the wider deals market. Groupon was previously blasted for a string of accounting errors during the tumultuous run-up to its IPO, and was forced to drop an accounting metric which excluded expenses such as online marketing and acquisition-related items. The hiccups are leading some to question whether the firm went public too early, as Groupon made its stock market debut just three years after forming, while companies of a similar age are free to make mistakes in private without disclosing all activity to investors.

The daily deals sector appears to divide analysts after a period of extensive hype engulfed the market during much of 2011. Some doubt that the fast-growing space is sustainable for both the firms operating in it and merchants, with Groupon’s ascension to the stock market with what some label an unproven business model adding to the concerns. A report from Daily Deal Media in January claimed that the number of daily deals sites globally fell by 798 in the second half of 2011 alone, as the market began to consolidate.

Nevertheless, Groupon continues to lead the market, at least in the short-term, and stats from ForeSee released last month suggest that the firm, along with LivingSocial, could indeed be encouraging repeat purchasers, contradicting numerous previous reports about deal customers’ loyalty. However, merchants appear to be less optimistic about returning to daily deals platforms, according to a recent report from Susquehanna Financial Group and Yipit. The research claims that 52% of merchants offering daily deals through group-buying services such as Groupon and LivingSocial do not intend to continue doing so in the next six months, ensuring debate regarding the market’s success is likely to continue.

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