Homestore.com Inc. said yesterday that based on preliminary results of an internal audit, it overstated its advertising revenue from January to September 2001 between $54 million and $95 million. As a result, the real estate services portal said that it would restate its earnings for the first nine months of the year.
The Westlake Village, CA, company said Dec. 21 that it assembled an audit committee to look into its accounting practices. Homestore.com said that the accounting problems surfaced when “certain advertising transactions that should have been accounted for as barter transactions” because they were related to purchases from third parties were accounted for as ad income.
Homestore.com operates the www.homestore.com portal and runs the www.realtor.com and www.homebuilder.com Web sites.
“The inquiry is not yet complete and while it is not yet possible to predict the ultimate results of the inquiry, the company has made a preliminary determination that it will restate certain of its financial statements,” Homestore.com said in a statement.
The company also said that the transactions under review occurred in 2001 and 2000 and that it may have to restate its earnings for 2000 as well.
For the third quarter ended Sept. 30, Homestore.com reported total revenue of $116.1 million, up from $62.2 million a year ago. For the first nine months of 2001, the company reported total revenue of $350.9 million.
It also reported a net loss of $106.6 million, or 96 cents per share, for the third quarter, up from just over $27 million, or 33 cents per share, a year earlier. The company's net loss for the first nine months of the year rose to $245.8 million, or $2.35 per share, from $80.9 million, or $1.03 per share, in 2000.
Homestore.com said its advertising revenue of $28.5 million in the third quarter represented 24 percent of total revenue. Ad revenue fell 44 percent in the third quarter compared with the second quarter, the company said.
The Nasdaq stock market halted trading in Homestore.com's stock Dec. 21 at $3.60. As of Jan. 3, the company's stock still was not trading. Nasdaq said on Dec. 24 that it asked the company for additional information relating to its financial irregularities and that its shares would not resume trading until the stock market's request for information was satisfied.
Homestore.com's chief financial officer, Joseph Shew, announced Dec. 6 that he was resigning after less than a year in the job. Shew did not explain his action other than to say he was leaving for “personal reasons.” He became Homestore.com's CFO in February 2001.
As a result of having to restate its finances, Homestore.com also faces at least three class-action lawsuits.
