Groupon Hits a Speed Bump
Groupon shares are faltering after just weeks of public trading, and no one seems to know for sure what's behind the slide. "The problem with Groupon is their execution of the business, not group buying in general," argued Tippr CEO Martin Tobias. Not so, insisted D&B's Lee Simmons, who said the market is merely reacting to heavy competition from LivingSocial -- not waning investor interest.
Nov 23, 2011 5:00 AM PT
Only weeks after its triumphant initial public offering, it appears daily deal trailblazer Groupon has fallen out of investors' good graces. Its stock price has plunged 15 percent, with shares hovering near their IPO average of US$20 or so per unit.
In the months leading up to its IPO, Groupon experienced a similar slide in investor confidence as it morphed from golden child to the symbol of everything that is wrong with tech stocks. It then redeemed itself the day it went public, with shares trading as high as $30 at one point.
The reasons for the drop in stock price are unclear, although market watchers certainly have their opinions, which range from the cooling of initial investor excitement over the IPO to the competitive wallop of LivingSocial's Thanksgiving Day specials.
The Harsh View
"The IPO confetti has settled, the champagne has gone flat, and Groupon has to accept the fact that they have no solid institutional support behind their stock," said Martin Tobias, founder and CEO of Tippr.
"From its very beginning, Groupon has operated on shaky financials, and the stock slump is yet another proof point showing the problem with Groupon is their execution of the business, not group buying in general," he told the E-Commerce Times. "There are plenty of profitable, well-run deal programs that actually serve merchant goals. Unfortunately, Groupon is not one of them. And the investors know it."
The drop in Groupon's stock price is not surprising to Andrew Stoltmann, a securities attorney at Stoltmann Law Offices.
"You have a company with no earnings, two CFO resignations in the last 12 months, and a management team that made some mistakes during the run-up to the IPO -- like talking during the SEC-mandated quite period," he told the E-Commerce Times. "I think once the sizzle burned out, investors are taking a closer look at the stock and seeing some of its warts."
'Flight to Safety'
It may be that many investors view Groupon as too risky at a time when global events are unsettling nerves, said serial entrepreneur Stephan Paternot, founder and general partner of Actarus Funds, founding partner and chairman of Slated, and cofounder and chairman of PalmStar Entertainment.
"In my opinion, we are experiencing the same thing that happened in 1998 during the Russian ruble collapse," Paternot told the E-Commerce Times. "A flight to safety. Europe and the failure of the debt committee are further signals of rough waters ahead. Any lofty dot-com IPO like Groupon is going to take a hit."
Sensitive to Competition
A less-ominous explanation for company's stock fluctuations is more likely, according to Lee Simmons, an IPO industry specialist with Dun & Bradstreet.
"Yesterday, LivingSocial announced a holiday special with 20 different deals with national merchants for Black Friday. My suspicion is that the stock market is reacting to that competition," Simmons told the E-Commerce Times. "I don't believe it is the result of waning investor interest."
The stock will return to previous levels after this week -- or at the latest, after the Christmas holidays, Simmons predicted.
"However, it is notable that competition is able to do that to Groupon stock," he said. "That is definitely something investors should monitor going forward."
Some of the drop may be due to sheer investor squeamishness, suggested Peter Krasilovsky, an analyst with BIA/Kelsey. Some people are shying away from long-term investment in a company with an uncertain future, operating in a difficult economic environment.
"My speculation is that it is those people who are dropping out now, and it is not related to competitive issues," said Krasilovsky.
"There isn't a new pattern emerging for the company, in other words. That is, Groupon is not suddenly losing market share to the competition -- nor has the daily deal space started to fade faster than we anticipated," he said.
"There is a lot of funny interest among some investors in this stock," concluded Krasilovsky, "who are not necessarily loyalists to either Groupon or the daily deal industry."