Earlier this month, Groupon made a big splash when it went public, attracting a lot of eager investors. Its stock shot up 50% on its first trading day. But things took a downturn this Wednesday when the stock price dropped below its starting price of $20. By closing, Groupon’s shares had fallen 14.2% to $17.22 on the Nasdaq, marking a total decline of 34%.
Some experts think this downward trend might continue unless Groupon shares some good news soon. One reason for the stock drop could be its main competitor, LivingSocial, partially owned by Amazon.com. LivingSocial announced on Monday that it would offer more than 20 deals with national companies for Black Friday. While this could bring in lots of new customers, it also puts a lot of pressure on profit margins.
Another reason for the decline could be that it became easier for investors to short, or bet against, Groupon. When Groupon first went public, there were not many shares available for short sellers, who need to borrow shares before selling them. But this situation changed quickly this week.
Some analysts feel that Groupon was overvalued from the start. To them, the quick drop in its share price isn’t surprising at all.