Groupon's Fall Trips Circuit Breaker; 'Short' Sales Restricted
06/01/2012| 01:31pm US/Eastern
--Lockup expiration raises prospect of more Groupon shares flooding market
--Concerns over 4Q revisions also weighing on stock
--Drop prompts circuit breaker, restricting short selling
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By Drew FitzGerald and Michael Driscoll
Groupon Inc. (>> Groupon Inc) shares dropped as much as 10% Friday as a wave of new stock became available for sale by company insiders, adding to investors' already-weak appetite for the daily-deals provider.
Starting Friday, more than 600 million Groupon shares were freed to be traded by insiders and early investors, as the lockup on those holdings from the company's initial public offering expired. The extra supply of stock and the newfound ability of certain investors to unload shares pressured Groupon's stock price, as well as those of other recent technology-company IPOs.
"The infatuation with social media has evaporated, especially after the Facebook IPO debacle," said Sameet Sinha, analyst with B. Riley & Co. Facebook Inc. (FB) and LinkedIn Corp. (LNKD) were among the stocks affected Friday by the Groupon decline.
Groupon shares recently fell 9.9% to $9.58, pennies above the all-time low of $9.53 set earlier Friday. The stock is now less than half its November IPO price of $20. This week, the company has lost about a fifth of its stock price, or about $1.6 billion in total market value, due largely to the lockup expiration.
In addition, the ability to sell Groupon shares short--which allows such investors to profit when the stock price goes lower--was restricted after the stock's fall tripped a market circuit breaker Friday morning. A temporary 10% decline triggered restrictions that limited short selling for the rest of the session and through the close of trading Monday.
As of May 15, Groupon had 20.7 million shares sold short, or 3.2% of the shares outstanding, according to FactSet Research.
Friday, more than 93% of the company's Class A shares became available for trading.
While senior Groupon executives have suggested they didn't plan to sell stock after the lockup period ended, lower-level workers may jump at the opportunity to unload stock, even as shares trade around all-time lows, analysts said. By midday Friday, the volume of Groupon shares traded was nearly three times its recent daily average.
Analysts at Susquehanna Research had noted that the company's top executive group owns about a third of the shares outstanding, and venture-capital firms hold another third. With the stock so far off its IPO price, "we are not sure about VC appetite to be selling at current levels," Susquehanna said.
Groupon, which offers daily deals to subscribers online, has struggled to control costs over the past year.
Before going public, regulators forced the company to recalculate its revenue and to stop using a controversial measure of its valuation. After the IPO, the stock has been under pressure as investors worried about expenses outpacing revenue growth. In March, the company restated its initial quarterly report as a public company and included a "material weakness" in its financial controls, something the Securities and Exchange Commission is investigating.
"Everything about Groupon is kind of fragile at this point," Sinha said.
Groupon's selloff Friday pressured other newly public technology companies. Facebook shares recently fell 5.3% to $28.03, while LinkedIn dropped 4.7% to $91.55. Facebook faces its first lockup expiration in mid-August.
Meanwhile, Splunk Inc. (SPLK), another recent IPO, saw its shares fall 9.5% to $29.48. The data-analysis software company reported mostly better-than-expected first-quarter results late Thursday, but its shares fell victim to lofty expectations, the Groupon fallout and the general malaise in the market Friday.
-By Drew FitzGerald and Michael Driscoll, Dow Jones Newswires; 212-416-2909; email@example.com