Groupon Shares Backpedal
Shares of Groupon Inc. tumbled 15% Tuesday to end near the $20-a-share price of the daily-deals company’s recent $805 million initial public offering.
Analysts attributed the stock’s biggest one-day loss since its Nov. 3 IPO to concerns about the health of the e-commerce market and rising competition, as well as factors that may have helped short-sellers, who have taken an interest in the company.
The sharp drop—Groupon’s stock was down $3.51 at $20.07 in 4 p.m. trading Tuesday on the Nasdaq Stock Market—may be a sobering sign for other high-profile Internet companies awaiting IPOs.
The sudden decline represents “a break in the thinking that the Internet is still a safe platform for technology speculation,” and means investors will be more skeptical of “automatic high-demand IPOs,” said David Menlow, president of IPOfinancial.com, an IPO research provider in Millburn, N.J.
The initial success of Groupon’s offering was hailed as a signal that the market was receptive to fast-growing but risky social-media stocks. Its shares rose 31% to $26.11 on Nov. 4, their first trading day, valuing the company at $16.7 billion, despite arguments from critics that a much lower value was more realistic.Since then, they have stayed near $26.
But the broader stock market has weakened recently, with the Dow Jones Industrial Average falling 5.4% since Nov. 11, and Groupon shares have been hit hard this week. After closing at $26.19 Friday, The stock fell $2.61, or 10%, to $23.58 on Monday.
John Aiken, head of equity research for ITG Investment Research Inc., said the selloff partly reflected overall weakness in e-commerce. Buying coupons on the Internet, he said, is among the most discretionary of e-commerce purchases. For that reason, he added, Groupon also would be the first in the business to be hit by growing concerns about holiday sales.
“There are fundamental reasons this is happening,” Mr. Aiken said. “There is fundamental weakness in e-commerce.”
Groupon shares also have become cheaper recently for short sellers, who sell borrowed shares to bet on a stock’s decline. That may have greased the skids for Groupon’s two-day price slide.
Bruce Turner, president of Quadriserv Inc., an electronic-trading platform that helps clients lend and borrow stock for settlement of short sales and other purposes, said the annualized cost of borrowing Groupon stock has fallen to 21% from 96% a few weeks ago. The reason, he added, is that more shares have become available for borrowing because the stock has traded actively since its debut.
Some analysts noted that Groupon’s main rival, LivingSocial Inc., said last week it will offer 20 national deals with major retailers starting on Black Friday, the day after Thanksgiving. The Washington-based daily-deals site also is making a big marketing push to promote the Black Friday deals, including a national television campaign that began airing Monday.
Groupon also will be offering thousands of national deals for Black Friday and Cyber Monday.
“I think the biggest lesson from how Groupon has traded is how difficult it is to price IPOs of companies with dramatic growth, but significant question marks about their business models,” said Lou Kerner, a Liquidnet analyst. “Groupon will find support, but it appears likely that it will be below the IPO price.”
A Groupon spokeswoman declined to comment.
I posted an article about Groupon’s IPO few weeks ago and here’s an update of what’s going on with Groupon IPO now~! For those who noticed, Groupon’s IPO exceeded expectation and the price sky rocketed for few weeks right after the IPO. The IPO’s price was wat $20 and it almost hit $30 just few days after the IPO. For some (or many for that matters), they kind of expected the downturn on Groupon’s shares because even the company’s fundamental is weak financially. Now the share is priced at $20.07, just 7 cents above the IPO’s price with some people are still expecting the price to go lower. Where do you see Groupon’s share price is heading to? Do you personally hold some Groupon shares? Share your views with us!