Friday was a horrible day for investors in Groupon. The stock tumbled 6 percent on news that the company would restate it earnings after underestimating customer refunds, which led its auditor to declare the company had a material weakness in its internal controls.
That kind of news is never welcome, and Groupon’s management has a lot to do to win back investor confidence, but at least it didn’t compound its problems by trying to hide bad news.
I give the Groupon investor relations staff high marks for its handling of this episode. Here’s what they got right:
First, the company openly acknowledged its revisions in a news release, instead of simply filing its annual report and leaving investors to discover the news themselves. That would have really damaged the management team’s credibility and would have made it difficult for investors to grasp the basic facts about the restatement and understand its effects.
Second, the news release was clear and factual and put the bad news in context. Reported earnings were lower as a result of the revision, but the company’s cash flow (a closely watched performance metric) didn’t change. The company also affirmed its previously announced guidance for first-quarter 2012 earnings.
Third, the news release included a quote from CFO Jason Child reiterating his confidence in the fundamentals of Groupon’s business and its value to customers. The quote served to put a “face” on the news and reminded investors that the company remains on course.
I don’t have a view on the attractiveness of Groupon’s stock or the sustainability of its business model, and management has had more than a few stumbles, but its investor communications have been solid.