Could the Decline in Groupon’s Share Prices Have Been Anticipated?

Groupon hit the stock market earlier this month with a strong start, as investors were keen to snap up its shares. The company’s stock impressively jumped by 50% on its first trading day. However, this Wednesday saw a shift, with Groupon’s share price dropping below its initial offering price of $20. The shares fell by 14.2% to $17.22 on the Nasdaq, totaling a 34% decline.

Some market experts suggest this downward trend might continue unless Groupon shares some positive developments. One reason for the significant drop could be its major competitor, LivingSocial. LivingSocial, partially owned by Amazon.com, announced plans on Monday to introduce over 20 deals with national companies for Black Friday, potentially drawing in many new customers. However, such widespread deals could also pressure profit margins.

Another possible reason for the drop in Groupon’s stock is the increased ease for investors to short the company. During Groupon’s first week on the market, there were few shares available for short sellers, who need to borrow shares before they can sell. This situation changed significantly this week.

Additionally, some financial analysts feel that Groupon’s initial valuation was high, to begin with. For these market watchers, the quick drop in Groupon’s share price didn’t come as a shock.