Why Groupon Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of daily deals site Groupon (NAS: GRPN) were being marked down by investors today, falling as much as 15% in intraday trading as investors reacted to the company's latest accounting foul-up.

So what: As the The Wall Street Journalpointed out, Friday's revelation from Groupon is only the most recent in a series of slip-ups from the hot-to-trot deal maven. At week's end, Groupon told investors that it would have to restate earnings to adjust for the potential for more refunds triggered by higher-priced deals. The change knocked revenue down by $14.3 million while reducing operating income by $30 million. In addition, the company's annual report showed that its auditor had found a "material weakness" in its internal controls.


Now what: From this Fool's perspective, the promise of Groupon always rung a bit hollow -- it seemed to me that there was more sizzle than steak to the company's business model. But I'm also not the investor to turn to for the newest hot, exciting stock, as I tend to prefer proven, high-quality companies or dirt cheap bargains.

Even for those investors that were fans of Groupon, though, the latest fumble has to give some pause. Perhaps Groupon will indeed get its act together and cut down on the new additions to its blooper reel. Or it may simply be a poorly managed company that will keep investors' stomachs in knots wondering which shoe will drop next.

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At the time this article was published Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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