From Bad to Worse at Homestore

Things just keep getting worse at troubled online real estate play Homestore Inc., caught up in a scandal over inflated online advertising revenues. Now the company says it will have to reduce 2000 revenues by $39 million to $45 million.

Homestore also said that the overstated revenues also included income from categories other than online ad sales. And this morning the company said it has received notice that Nasdaq has initiated proceedings to delist its stock for failure to file financial reports on a timely basis. An appeal is planned.

The company’s stock was set to resume trading today, after being halted by Nasdaq since Feb. 13. It was trading at 74 cents a share when it was halted.

Homestore also said that online advertising revenue for the first three quarters of 2001 was overstated by $76 million to $82 million, and that non-advertising revenue for the period was overstated by $28 million to $31 million.

Homestore said about $7 million to $23 million of the 2001 non-advertising revenue, mostly from sales of software and services, will be recorded as deferred revenue at Sept. 30, 2001 and may be recognized as revenue in future periods. The company determined it had not met all of the conditions required to recognize this revenue in the first three quarters of 2001.

Previously Homestore had said it might remove as much as $95 million from its 2001 results. Now it’s up to as much as $113 million.

The company’s internal accounting probe began last December. On Feb. 13 Homestore said it would have to restate its financial results for all of 2000, as well as the first three quarters of 2001.

Homestore said it “is firmly committed to completing a thorough inquiry of these matters and expects to complete the inquiry and file restated financial statements by mid-March 2002.”

Homestore said earlier that an audit committee investigation of its finances showed that it had accounted for barter advertising deals as regular ad sales transactions. A number of people have lost their jobs over the incident, and the former CEO was replaced.

The company has said it expects its cash flow from operations to be positive for the full year 2002. Homestore’s network of Web sites includes the flagship Realtor.com; HomeBuilder.com; Homestore Apartments & Rentals; and Homestore.com, a home information resource.