(By Fred Dunsel) Groupon Inc. (NASDAQ:GPRN) continued its downward trajectory last week, closing at $9.69 on Friday. The stock, which is down 54.7% for the year, has been falling since early February, when it peaked around $24. Last week's across-the-board decline, together with the domino effect from Facebook's stock performance on all social media stocks, only increased the downward pressure on the online deals company. It didn't help that last week also saw the lifting of restrictions on stock sales by the company's employees and other insiders who quickly dumped the company's stock at prices far below last November's IPO price of $20. (The stock hit an all-time intraday low of $9.53 on Friday, which also saw five times the normal daily trading volume.)
To allay investors' concerns, a Groupon spokesman said the company's three co-founders—Chief Executive Andrew Mason, along with Eric Lefkofsky and Bradley Keywell, who control one-third of Groupon's stock altogether — did not sell their shares on Friday and were committed to holding their stock. Nonetheless, it is well-known that the company has been struggling to control costs over the past year, and that there is increasing skepticism over its business model. Sameet Sinha, an analyst with B. Riley & Co, said, "The infatuation with social media has evaporated, especially after the Facebook IPO debacle. Everything about Groupon is kind of fragile at this point."
With increasing competition from rivals such as Google Offers and Amazon Deals, as well as greater scrutiny from the Securities and Exchange Commission over its accounting practices, some analysts are concerned that Groupon's second-quarter results will not show the same kind of sequential growth in revenue as the first quarter. One silver lining for the company is its strong balance sheet where it has $1.16 billion in cash and no debt, though its management has yet to display sufficient clarity in the company's future direction.
Given the above, analysts are not very optimistic about Groupon, especially given the current wariness about social media companies. Noting the downward pressure from the sheer size of the lock-up, which accounts for 93% of the total outstanding stock, Stifel Nicolaus issued a "sell" rating for Groupon.