Well, it was fun while it lasted.
For a few weeks after its blockbuster IPO, Groupon’s stock traded comfortably above the $20 IPO price.
Yesterday, the stock tanked 10%+, and this morning it crashed through the IPO price. As of 9:45, it was down another ~10%, near $18.
Why is the stock crashing? Anyone’s guess. It could be that some investors are hearing bad news about Q4. It could be that the underwriters have stopped aggressively supporting the price. It could be the broader market. Or all of the above. The bottom line is that folks aren’t willing to pay as much for the stock as they were a few days ago.
As I noted before Groupon went public, I think the company has identified a huge new opportunity and will eventually build a large, profitable, and healthy business. At the same time, however, Groupon is now in the midst of a painful transition from hyper-growth to profitable growth. This transition is usually hell on stock prices, and in my opinion, the IPO price was too high to account for that.
This is why I said that, if I were a big institutional investor, I’d have bought as much Groupon stock as possible at the IPO price… and then flipped it immediately in the after-market. And I’d be feeling OK about that decision right now.
In my opinion, given the risk to Groupon’s business over the next few quarters, the valuation won’t start to get interesting unless/until the stock closes in on $10 a share.
This said, it’s worth noting that even $10 would be an enormous valuation for a company created only three years ago. Those who are crowing that Groupon is “toast” and “a Ponzi scheme” because the stock is breaking the IPO price are, in my opinion, as wrong as they have always been.