Market Overview

Groupon Plunges 10% As Lock-up Expires


While the carnage in Facebook (NASDAQ: FB) shares has received most of the headlines, another high profile IPO has also been plunging on a near daily basis. Last November, Chicago-based daily deals site Groupon (NASDAQ: GRPN) went public at $20.00 per share in a very highly anticipated deal. Groupon has been called the fastest growing company in the history of civilization, but shareholders have been punished as the stock continues to flounder.

On Friday, the IPO lock-up period expired, freeing up 600 million shares, or 93 percent of the company's total outstanding shares, to trade freely on the open market. Around one-third of the shares, however, are controlled by co-founders Andrew Mason, Eric Lefkofsky, and Brad Keywell and will not be sold.

Nevertheless, some other investors who were bound by the lock-up are clearly selling. The stock has fallen 10% to $9.59 on Friday, marking a decline of more than 50% from the IPO price. The lock-up expiration has clearly been a catalyst for today's sell-off, but the stock has been in a significant downtrend for some time.

The disastrous Facebook IPO and a sharp reversal in risk appetite have compounded investor fears over GRPN's business model, more than halving the company's market cap to just over $6 billion. In looking at today's volume in the stock, it is clear that some investors are using the first day of the lock-up expiration to liquidate some of their holdings. More than 16 million GRPN shares have traded hands on the session compared to a 3-month daily average of 3.4 million.

While the current trajectory of the stock does not appear promising, it is still way too early to make a judgement on the future prospects of the company. While it may be inadvisable to be a buyer of the stock until a bottom is hammered out and a new uptrend is established, it is also hardly inconceivable that GRPN could double from current levels in short order.

In particular, if risk sentiment were to shift once again and investors start shifting back into growth names, GRPN would likely be a significant beneficiary. It is also important to remember that an event such as a lock-up expiry skews supply/demand dynamics and could push the stock well below its fundamental value in the near-term, hence creating opportunity for longer-term investors.

Posted-In: News IPOs Best of Benzinga


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