The online real estate company overstated its online advertising revenue by as much as $95 million in the first three quarters of 2001, Homestore announced on Wednesday. The company said the figure was just an initial estimate, but that it overstated its revenue by at least $54 million during the period. The range of its overstatement was part of a preliminary report on the company's inquiry into its own financial statements.
"When the company completes its analysis of the overstatements, the company intends to amend its previously filed reports for the quarters ended March 31, June 30 and September 30, 2001," read a release from the Westlake Village, Calif.-based company. "Accordingly, investors should not rely upon the company's previously filed reports for those quarters or the financial statements"
Homestore has no estimate on when it will complete its inquiry, company spokesman Gary Gerdemann said. Gerdemann declined to say why the company overstated its earnings.
"I won't have an answer to that until our inquiry is substantially completed," he said. "We're making progress. We're doing this as quickly as we can."
Trading in Homestore's stock has been on hold since Dec. 21, when the company announced the inquiry. The company has warned that its inquiry might require it to restate revenue and that it is reviewing transactions from 2000 as well as 2001.
"The company cannot at this time quantify the amounts of potential additional restatements," Homestore said in its statement. "Any additional restatements, if required, could have a further material adverse impact on the company's reported financial results."
The overstatements resulted from counting as revenue a number of barter transactions where Homestore traded advertising space for goods and services from other companies. They represent 15 percent to 26 percent of the revenue Homestore reported during the first nine months of 2001.
Times have changed quickly for Homestore. For much of last year, the company was pointed to as one of the few dot-com success stories, with rapidly rising revenue and an aggressive acquisition strategy. But events in recent months have sent the company reeling.
The company's third-quarter revenue came in far lower than originally expected, with online advertising sales dropping 44 percent from the second quarter. With revenue falling, Homestore announced in late October that it was laying off 700 employees, or 20 percent of its staff, in a reorganization.
Last month, company Chief Financial Officer Joseph Shew resigned, citing personal reasons. Two weeks later, the company announced that it was conducting an inquiry into its past financial statements and would restate some of its earlier quarterly reports.
Gerdemann said that the inquiry is focused on Homestore's accounting practices. The audit committee of Homestore's Board of Directors is conducting the inquiry in conjunction with lawyers and accountants outside the company.