Groupon’s stock shows no sign of recovering after it crashed below its $20 IPO price — it’s sitting at a lowly $17.05 at the time of writing. But what caused the tumble from just over $26? Here’s a summary of the varying explanations put forth by business media:
1. It was the cupcakes: The Need a Cake bakery in Reading, U.K., miscalculated in pricing a discount on its cupcakes and ended up selling 102,000 cupcakes at a loss. Owner Rachel Brown, said it was “without doubt, the worst ever business decision I have made”.
2. Which is another way of saying: “social marketing is just great for producers with fixed costs and near zero marginal costs. [Groupon is] terrible for those with more than trivial marginal costs,” according to Forbes contributor Tim Worstall.
3. Q4 not looking so hot? This is what my boss thinks: “It could be that some investors are hearing bad news about Q4.”
4. Breast implant ban bearshiness: Groupon was banned from advertising breast implants in the U.K. (Surely there’s more to its business model than that?)
5. Attack of the shorts: Herman Leung, an analyst at Susquehanna Financial Group, said borrowing costs for shorts came down enough to make betting against GRN a lot cheaper: “The cost to borrow was at nearly impossible levels, but it got easier starting yesterday.”
6. Low barriers to entry: Investors finally figured out that competing against Groupon is easy: “In the last few days, we’ve been hearing about LivingSocial stepping up promotions,” said Edward Woo, an analyst at Wedbush Securities. “The concern is that there will be much more competition for Groupon going forward.”
7. Risk off! Paul Bard, a director of research at Renaissance Capital, said, “In the environment we’re in right now, investors are wary of risk, and so these less-seasoned companies will naturally face more selling pressure.”
8. It’s all Linkedin’s fault: The social network’s lockout period ended allowing insiders to sell their LNKD holdings. The stock has lost half its value since its peak, and dragged down GRPN with it.
9. It’s the merchants, stupid: Much has been made of Groupon’s growing base of subscribers. But it’s not the subscribers that count, it’s the merchants. As Forbes’ Worstall put it, “If businesses decide they no longer want to offer Groupons then it doesn’t matter how large the email list is, there’s just not a business there.”
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