This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Groupon's Troubles Were Written on the Wall

Stocks in this article: GRPN

By Michael Tarsala, Covestor

BOSTON ( TheStreet) -- You didn't need an accounting degree to see Groupon's restatement mess coming.

Bloggers, journalists and professors had raised detailed concerns about its books ahead of its November initial public offering. But there was no stopping the surge of market orders on the company's first day of trading.

Fast forward to April. Groupon's market value has been been cut in half. It is now facing the extra scrutiny investors probably should have given the company in the first place. And the SEC may now be getting involved.

There's a group out there saying "I told you so." And, truly, they did.

Groupon is now a case study in why every investor needs to apply due diligence and skepticism when it comes to trendy stocks.

There are three main Groupon takeaways for every investor:

Read the details

This part is not that hard or time consuming: For your biggest individual investments, you should visit the SEC Edgar site and read the latest filings. In Groupon's case, that's where some of the first red flags surfaced.

In its IPO filing, Groupon acknowledged its management team has "limited experience" with regulatory compliance, a problem that seemed to persist for months. And the filings would have tipped you off to a previous revenue correction.

Also, blogs such as the daily linkfest at Abnormal Returns and Josh Brown's The Reformed Broker are now required reading. Brown, in particular, has been a consistent Groupon critic. Blogs helped to popularize questions from professors Ed Ketz and Tony Catanach about Groupon's accounting and internal controls. Those same professors were among the first to wonder out loud if Groupon was cooking its books.

If you don't understand it, avoid it

Warren Buffett is famous for this advice. And who am I to argue?

In Groupon's case, we're talking about a company that invented its own financial metric: Adjusted Consolidated Segment Operating Income. How's that for simplicity?

I can appreciate operating earnings (EBITDA, as an example) as a way to better understand earnings trends. Yet I had never heard of adjusted CSOI until Groupon came along, which was set up to exclude its marketing expenses. Keep in mind, marketing is essentially Groupon's business! Eric Savitz at Forbes brought the controversial metric to the fore 10 months ago.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs