After trading as high as $31 just after it went public, a risky global environment and lingering business model concerns pulled Groupon (NASDAQ:GRPN) down steeply. The company’s shares were trading as low as 15% below the offering price of $20 on the close of 23th November. [1] With continuously rising competition from players like Google (NASDAQ:GOOG) and LivingSocial, Groupon badly needs a healthy financial report card in the coming quarters to prove that its business model is still robust.
See Our Full Analysis For Groupon
Decline Should Not be a Huge Surprise
Groupon’s share price pop just after its IPO was largely a result of investors trying to make a quick buck by flipping the stock. As we had indicated in our earlier note, both tremendous hype and a very limited supply of floating shares were partly responsible for this. Now that 3 weeks are past, investors are realizing the high risk associated with a tech stock like Groupon. Given the wobbly economic environment in the Eurozone , the expectation is that Groupon’s international operations could be adversely affected. Additionally, ever increasing competition from giants like Google could keep marketing expenses at dangerously high levels.
If not a bumper Q4 2011, Groupon certainly needs the next quarter to show better trends i.e. a reasonable revenue growth and reduced marketing expenses. Unfortunately, past trends for Groupon’s revenue vs. marketing show that this is difficult feat to achieve. To add to its woes, Groupon has also seen some bad merchant reviews lately which have been adequately publicized. [2]
We recently launched coverage on our analysis of Groupon with a $13 price estimate. Refer to our note on why Groupon’s valuation has fluctuated significantly over the past 2 years.
Understand How a Company’s Products Impact its Stock Price at Trefis
Notes:
