Bloomberg News

Groupon Shares Plunge for Second Day, Approaching IPO Price

November 24, 2011

(Updates with closing share price in second paragraph.)

Nov. 22 (Bloomberg) -- Groupon Inc., the largest Internet daily-deal site, plunged 15 percent, pushing the shares near their initial public offering price for the first time.

The stock tumbled $3.51 to $20.07 at the close in New York, with 5.22 million shares changing hands, the highest volume since its second day of trading. Groupon, up 31 percent before this week, dipped as low as $20.03 earlier in today’s session, 3 cents more than the IPO price.

Groupon was dragged down for a second day on concern that profit margins will be squeezed by surging marketing costs and competition from rivals such as LivingSocial.com, backed by Amazon.com Inc. It also became cheaper to borrow the shares for so-called short sales, bets that pay off if a stock declines, said Herman Leung, an analyst at Susquehanna International Group LLP in San Francisco.

“It’s been impossible to borrow, and it’s been easing up a little bit,” said Leung, who has a neutral rating on shares of Groupon and doesn’t own any. “LivingSocial has been a little bit more aggressive lately as well.”

The so-called borrow rate, or fee imposed by brokers on traders who want to sell short, has dropped to about 30 percent from 99 percent earlier in the month, Leung said. At 30 percent, Groupon’s shares would have to decline by at least that much before the trader makes a profit.

Groupon was buoyed in the days after its IPO because it offered a small percentage of the outstanding shares -- holding a so-called low-float IPO -- which helped drive up demand. Now investors are having second thoughts, said Howard Lindzon, chief executive officer of the online investing community StockTwits.

“I think we all know this was a rushed deal,” he said.

--With assistance from Cory Johnson and Danielle Kucera in San Francisco. Editors: Tom Giles, Stephen West

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net.


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