Groupon shares tumble but critics’ glee may be premature

Groupon’s fun time, it would seem, has come to an end. Following a 15% drop in the value of Groupon’s stock price on the NASDAQ, its many detractors are enjoying the schadenfraude of having “called it”. There are arguments, however, that this glee may be somewhat precipitous.

The day Groupon’s stocks finally went live, at US$20 per share, they soared to highs of US$31.14 per share. In the weeks following, the stock fell from those highs but remained at stable or higher than the IPO price levels.

In fact, the stock’s biggest danger, those who sought to flip (buy low and sell high) the shares on its first day on the market were burnt. Reports indicated that of those who bought and sold the stock on that day, making an average return of -3.3%, almost two-thirds lost money.

While weeks following the IPO seemed to be looking to force detractors of the group buying site, some of whom have dismissed the business as nothing more than a tarted up “Ponzi scheme”, into retracting, the recent “crash” in price has brought them out en force.

From Groupon’s questionable and creative accounting practices, to questions about its business model, many of the issues which were believed to have been discussed/resolved during the tumultuous run-up to the IPO have been dredged up as possible explanations for the drop in share price.

In addition to that, some have pointed to the sudden realisation by investors that there are an array of Groupon clones. “Apparently investors have figured out that there are other companies competing hard in the same space and that there are few barriers to keep more competitors out,” 247WallSt conjectured.

Business Insider CEO and Editor-in-Chief Henry Blodget has a different — far more plausible — take however.

Groupon is now in the midst of a painful transition from hyper-growth to profitable growth. This transition is usually hell on stock prices, and in my opinion, the IPO price was too high to account for that… In my opinion, given the risk to Groupon’s business over the next few quarters, the valuation won’t start to get interesting unless/until the stock closes in on $10 a share.

This said, it’s worth noting that even $10 would be an enormous valuation for a company created only three years ago.

Tickrwatch — cited by Google Finance on Groupon stock’s ticker — while alerting investors of the “abnormal price movement”, also wrote, “The stock may bounce back… you may want to pay close attention for a move up to the $24.34” whilst also warning investors to be careful.

While Groupon’s drop was the largest, other more established tech stocks also saw a drop in price yesterday.

While Groupon is certainly one to watch, any calls that it has, or is, “tanking” are premature. News that certainly is interesting and being under-reported: LinkedIn’s, stock is down near on 30% since it’s IPO.