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Online real estate company Homestore (Nasdaq: HOMS) has admitted it overstated revenue from January 2000 to September 2001 by up to US$158 million, prompting Nasdaq to initiate proceedings to delist the stock.
Homestore said it plans to challenge the decision by requesting a hearing next week before a Nasdaq panel.
"Homestore has come clean on prior problems, and that's the first step to a healing process. I'm hopeful for them, but I wouldn't necessarily put investors' money in them," Salomon Smith Barney analyst Lanny Baker told the E-Commerce Times.
Stock Fluctuations
The company's stock resumed trading Friday morning under the symbol HOMSE after being halted for more than a week.
"When trading resumes, our stock price may experience large and rapid fluctuations," the company said in a statement issued prior to the resumption of trading. Indeed, Homestore's stock plunged 28 percent to 53 cents before rebounding to 64 cents in early trading Friday.
Nasdaq previously had halted trading in the stock on December 21st, but it resumed trading on January 7th. Shares of Homestore were at 72 cents when trading was halted again on February 13th -- the day the company said it would restate financial results for 2000 -- far off their 52-week high of $37.16.
Inflated Revenue
Homestore said revenue in 2000 was between $39 million and $45 million less than previously stated. Also, in the first three quarters of 2001, advertising revenue was overstated by $76 million to $82 million, and the company's non-advertising revenue was overstated by $28 million to $31 million.
In December, when Homestore first announced the accounting inquiry, it said only that it had overstated online advertising revenue by $54 million to $95 million in the first three quarters of 2001.
"They've got a lot of work to do, to be sure. It's pretty clear that the underlying company is a lot smaller than we all thought six months ago," Baker said. "Clearly, they now have to go back and address the mistakes that were made by prior management."
Homestore said it plans to finish its review and make a complete restatement of financial results by mid-March. The company already has fired or accepted resignations from seven employees as a result of the accounting probe.
Lawsuits Galore
Homestore also faces a flurry of class-action lawsuits on behalf of shareholders who purchased stock from May 4, 2000, to December 21, 2001. The complaints claim Homestore illegally boosted its stock price by artificially inflating its financial results.
According to law firm Rabin & Peckel, Homestore and its officers and directors "misrepresented Homestore's true prospects in an effort to conceal Homestore's improper acts until they were able to sell at least $16 million of their own Homestore stock."
Law firm Berman DeValerio Pease Tabacco Burt & Pucillo said Homestore used "accounting tricks" to boost revenue rather than real sales. In exchange for an ad placed on the Homestore site, the company reportedly would purchase a product or service from the advertiser, in effect bartering ad space.
According to the complaint, three former Homestore executives -- Stuart Wolff, John Giesecke and Joseph Shew -- made almost $34 million from insider sales before investors caught on.
Holding Out Hope
Despite restated results, lawsuits and the possibility of delisting, Baker said, Homestore's problems are not insurmountable. "They've built their mine on what ought to be a fairly rich vein of opportunity," he noted.
"Listed or not listed, trading or not trading, the
company still has some important relationships with
realtors. Not all those relationships are in great
shape, but they are clearly the Internet company of
record in this category. The challenge for current
management is to capitalize on what has been built and
take it ... to the next level," Baker added.
