Homestore to restate results "I don't think it was a total fraud," said Rashtchy.
Homestore to restate results
By Andrea Orr
PALO ALTO, Calif., Dec 21 (Reuters) - Internet real estate service Homestore.com Inc. <HOMS.O> Friday said its troubles could run deeper than its recent losses suggest, and that it will probably have to restate results for earlier quarters as it conducts an inquiry of accounting practices.
The news followed a surprise announcement from Homestore last month that its revenues had dropped dramatically and that its outlook going forward would be much worse than expected.
In a brief statement the company issued on Friday, it gave no reason for the accounting probe and a spokesman declined to comment on what had prompted the inquiry.
However, analysts and investors had become suspicious of the company's accounting practices ever since it changed its outlook in November.
Homestore, an online destination for everything related to real estate from decorating tips to realtor referrals, was going strong as recently as this summer, when it reported its second quarter sales had more than doubled. Most Wall Street analysts had held the company in high regard and said it was the rare dot-com business model that could work.
So although it was just one of many of dot-coms to fall from grace, its reversal of fortunes seemed particularly severe and swift.
In November, Homestore reported a third quarter loss of $106 million, but more strikingly, it said that its advertising revenue had fallen 44 percent from just the prior quarter.
"I think what I said at the time was that it just did not add up," said U.S. Bancorp Piper Jaffray "It suggested that they may have been recording revenues in a manner that was not customary."
Other sources familiar with the company's accounting methods said Friday that Homestore had sometimes signed long-term deals in which it would receive revenue over a long period of time, but then recorded all the revenues up front. The danger of course, was that the advertiser would cancel the deal halfway through.
"(Homestore) would tell the advertisers that they could cancel the deal any time they wanted, but that it wanted a purchase order up front," the source said.
In its last earnings statement, Homestore disclosed that it had lost three of its major advertisers and would probably not be able to replace that revenue.
Homestore shares closed up 34 cents to $3.60 a share on Friday, before announcement was released. The stock is well off its 52-week high of $37.25.
Still, analysts say it appears the company's errors were more due to naive optimism about its growth potential than any intentional wrong doing.
"I don't think it was a total fraud," said Rashtchy.
19:49 12-21-01 |
