Profit beat expectations, but revenue fell short -- and traders ran as if they had been bit. How did the online coupon company, which has been attracting competition from the likes of Google (GOOG) and Amazon.com (AMZN) and unflattering comparisons to atrophying Web commerce IPOs like Facebook (FB) and Zynga (ZNGA), pull off that trick?
The Associated Press flailed about without touching upon the essential reason. It said that the weak European economy led less people to rush for services like "laser hair removal."
It also mentioned the cost of paying executives with stock and of acquiring customers, a Chinese joint venture and currency exchange rates, as well as a light forecast for the current quarter.In a quick-hit piece after the earnings release, Business Insider was almost comically mystified, saying: "Despite numbers that look okay on the surface, something problematic must be lurking below." Uh, OK. But in a follow-up article, Business Insider offered up a concise explanation: Groupon's core business is shrinking -- and how -- while growth is coming from a new division that features suspect accounting. It wrote this about the new division, called "Goods," which sells physical items: "Groupon recognizes revenue differently than in its core business. With some 'Goods' sales, Groupon is recognizing the total value of the item sold, not just the value that Groupon gets to keep after it sells a coupon." With apologies to those blaming a gathering level of disinterest in laser hair removal, this is the "something problematic lurking." Groupon's basic business is tanking. It's new business, while growing, is using skeevy accounting. That scared off traders -- and when you are too skeevy for Wall Street, you are doing something wrong. At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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