Groupon Shares Plunge Below IPO Price 3 Weeks After Going Public

By: EW News Desk Team   Date: 24 November 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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24 November 2011

Share prices for Groupon Inc shrank by more than 15 percent on Wednesday to close at $16.97, well below the $20 asking price of the coupon site’s initial public offering earlier this month.

It was the third straight day in a row that Groupon’s stock price had fallen, with the overall decline over the 3 days reaching up to about 34 percent.

"The stock has been very weak this week, as investors have continuing concern about growing competition and Groupon's overall business fundamentals," said Ed Woo, an analyst at Wedbush Securities, to CNN.

Groupon raised more than $700 million during its IPO in early November, making it the biggest IPO by a US Internet company since Google raised $1.7 billion in 2004. 

But the political and economic uncertainty surrounding the US at the moment, coupled with surging marketing costs and competition from rivals, meant that investors were beginning to question the sustainability of Groupon’s business model.

“There was a lot of skepticism to begin with about Groupon’s model, its margins, its growth rate, but now you throw on a world economy that’s very unpredictable and shaky, and I think people are doing a flight to safety again,” said Stephan Paternot, founder of Actarus Funds, to Bloomberg BusinessWeek.

Groupon, which is present in 175 North American markets and 45 countries, reported a net loss of $308.1 million for the first nine months of this year compared to a loss of $77.7 million during the same quarter last year.

Competition has also grown fiercer as Internet giants such as Google and LivingSocial, co-owned by Amazon, continue to offer similar online discounts to those proposed by Groupon.

Analysts say that shares in the company may have lower this week due to the fact that it had become easier to short, or bet against, the company. They do this by borrowing shares that they immediately sell, hoping they can repay the stock by buying at a cheaper price later.

Woo has a price target of $22 and a "neutral" rating on Groupon's stock. He says that may come down if the stock is not able to bounce back soon.

"It is a little surprising at how quickly it's happening," said Woo. "But on the other hand the valuation was very high to begin with."    


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