Groupon Stock Shows Signs of Losing Luster

Image Credit: Seth Anderson

Remember how stock market analysts were praising how well Groupon stock performed during its Initial Public Offering earlier this month? Two weeks later, it looks like a wait-and-see approach may have been better served.

Groupon stock ended trading last week on a down note. Shares in the online deal-a-day pioneer fell below its initial starting price of $20 a share when trading closed last Wednesday, ending the day at $16.96. So far today, Groupon's shares are down slightly to $16.85.

The post-IPO performance of Groupon stock is serving as a reminder for investors looking for a quick profit just how much the stock market is a game of chance. Paul Bard, director of research for IPO advisory firm Renaissance Capital, told the New York Times:

“In the environment we’re in right now, investors are wary of risk, and so these less-seasoned companies will naturally face more selling pressure.”

Although some analysts have attributed the poor performance of Groupon's stock after its initial offering to factors such as concern about European markets and whether the U.S. economy can continue its slow recovery, the biggest factor affecting Groupon's trading, as critics consistently noted in the months leading up to its IPO, is its business model. Forbes Panos Mourdoukoutas noted that a combination of imitators and the types of offers Groupon is hawking don't make it a viable investment.

"While Groupon’s model is simple, it isn’t sustainable, for two reasons. First, as has been the case with other web-based companies like Netflix (NASDAQ:NFLX) and Open Table (NASDAQ:OPEN), Groupon is selling other companies’ products that have the upper hand in any deal negotiations. Second, they have plenty of competition from direct offerings from companies and from other web-based companies with a broad user base like Google (NASDAQ:GOOG), Amazon.com (NASDAQ:AMZN), and Yahoo (NASDAQ:YHOO), Expedia (NASDAQ:EXPE), Priceline.com (NYSE:PCLN) and Travelzoo (TZOO).
"Compounding the problem is the product nature of Groupon deals. Most offers are in the discretionary category and services that are at the low end of the consumer list—like club memberships and cruises rather than dental paste and laundry detergents. This means that Groupon must spend heavily on advertising to push these products and services on the top of their list, which certainly has a negative impact on the company bottom line."

The continuing scrutiny over Groupon stock serves as a cautionary tale to other tech startups preparing for their IPOs such as Facebook, which is expected to go public next year.

Contact the author of this article or email tips@chicagoist.com with further questions, comments or tips.

By Chuck Sudo in News on November 28, 2011 11:40 AM 0 Comments

Comments [rss]

Tim Schreier

As far as I can tell, the only product Group On has is salespeople flooding the market with seemingly empty visions of riches for merchants. One has to hand it to Group On for collecting such a large salesforce, but at the end of the day, that is all there is to Group On, a salesforce coupled with a mailing list. The only way I would ever consider using Group On, if I were a business, would be if I had perishable inventories or services that are perishable by time (hotels, advertising, events, etc). If you are playing "Beat The Clock" Group On is viable, otherwise, I would be very cautious about bottom feeders, discount hunters and flooding your business (restaurant) with people who want the cheap solution vs. full paying customers. Maybe there is a place for Group On, but I would be cautious prior to entering any agreement with them.

Scott Frazer

Of course finding differences between Facebook and Groupon is trivially easy. One's been around a lot longer and actually makes money. They may be a privacy nightmare, but that's a selling point to the people who actually pay them.

BlueFairlane

The continuing scrutiny over Groupon stock serves as a cautionary tale ...

It would in a rational world, but we had 10 years of internet cautionary tales leading up to the Groupon mess, and people still swallowed it whole. A year ago people were still saying how wonderfully different this particular ponzi scheme was, and were branding all naysayers (like *ahem* certain Chicagoist commenters) as hopelessly negative curmudgeons for not drinking the half-priced Kool-aid. People will be just as gullible for the Next Big Thing.

ChicagoD

But you don't understand. They have your email. YOUR EMAIL!

Giving you flashbacks?

demonfafa

I guess I'll have to look to LivingSocial for half-priced lap dances.

ihateloggingin

Groupon....Apply directly to the forehead.
Groupon....Apply directly to the forehead.
Groupon....Apply directly to the forehead.

AndrewInDC

Last week's Groupon
email started "Half off stock..." and in my bleary-eyed
first-of-the-morning state, I thought "Wow, it's good of them to
recognize that... I guess that's a good start... But that's still not a good deal on shares of GRPN"... the line completed: "...car racing experience" Also: I think GRPN was "showing signs" of "losing their luster" when they were forced to re-release their books prior to their IPO with a set where the math was remotely consistent with reality. Everyone else is just waiting for the float to be large enough that we can find the shares to short it.

mjusa4100

As a merchant, hopefully this is the beginning of the end for daily deals.

chuzzlewit

group on. group off. group on group off...

Buffalobleu

"Pardon me but do you have any Gray Groupon?"

"But of course"

Dread_Pirate_Roberts

In other news, the sun once again rose in the East this morning.

SFNY

And the third reason it's not sustainable is that one-time sales don't translate into customer loyalty and future sales, so there's no increase in repeat business for the participating retailers beyond the initial loss leader offer. You might get lots of awareness, but couponers don't make good customers and show lower perceptions of value and satisfaction for the products purchased.

schmeep

I think that Groupon's issue is that they listed the shares at a "Get it Now!" discount, when it should have been a featured Deal of the Day.