Groupon is possibly the most hated (by analysts) technology startup since the dot com bubble. It is the fastest growing company in terms of revenues, but it has been lambasted ever since it filed its first S-1 filing months back in order to go public. While everyone was first awestruck at how defiantly Groupon refused Google’s buyout offer of around $6 billion, once its financials were revealed, almost all analysts turned against it.
It had a very turbulent journey to the IPO – with issues like shady accounting measures, leaked memos in the quiet period, insiders and early investors cashing out early – but it finally listed with a significant pop – at around $25, reaching a high of $31. Its stock price was helped by the fact that it had a very small float, and that shorting it was too expensive.
However, in the last two days, it has shed most of its gains, and is now priced below $17, about 15% lower than the offer price of $20.
It’s trapped in a catch-22 situation – if it tries to bring down its marketing expenses, customer growth also drops. And if it doesn’t, it doesn’t turn a profit. Additionally, due to increasing competition by Living Social, Google Offers and the other 1457 daily deal players, its margins are getting squeezed. There is almost zero loyalty in the daily deal business – after all, coupon clippers will jump on to the cheapest deal, which may not necessarily be Groupon’s. It hasn’t been able to capture significant market share in most of the international markets it operates in, and deals in North America remain its largest business.
The stock still seems to be a bit overvalued and may drop even more in the coming days. The Groupon bubble has finally burst and the bloodbath doesn’t seem to be over.
Zynga, which was planning an IPO in the week after Thanksgiving, may have to consider postponing its IPO a bit more, considering the turbulent market conditions and the possibly low confidence of investors in tech stocks right now, after the Groupon debacle.