Groupon shares fall as lock-up expires

Some investors who were bound by the restriction are clearly sellng. It's an issue Facebook shareholders should pay attention to as well.

By Benzinga Jun 1, 2012 3:46PM

By Scott Rubin, Benzinga Staff Writer

While the carnage in Facebook (FB) shares has received most of the headlines, another high profile IPO has also been plunging on a near daily basis. And it's a lesson for all current and future Facebook shareholders.

Last November, Chicago daily deals site Groupon (GRPN) went public at $20 per share in a highly anticipated deal. Groupon has been called the fastest growing company in history, but shareholders have been punished as the stock continues to flounder.

On Friday, the IPO lock-up period expired, freeing up 600 million shares, or 93% of the company's total outstanding shares, to trade freely on the open market. Around a third of the shares, however, are controlled by co-founders Andrew Mason, Eric Lefkofsky, and Brad Keywell and will not be sold.

Nevertheless, some other investors who were bound by the lock-up are clearly selling. The stock fell 8% to $9.77 on Friday, marking a decline of more than 50% from the IPO price. The lock-up expiration has clearly been a catalyst for Friday's sell-off, but the stock has been in a significant downtrend for some time.

The disastrous Facebook IPO and a sharp reversal in risk appetite have compounded investor fears over Groupon's business model, more than halving the company's market cap to just over $6 billion. In looking at Friday's volume in the stock, it is clear that some investors are using the first day of the lock-up expiration to liquidate some of their holdings. More than 16 million GRPN shares have traded hands on the session compared with a three-month daily average of 3.4 million.

While the current trajectory of the stock does not appear promising, it is still way too early to make a judgment on the future prospects of the company. While it may be inadvisable to be a buyer of the stock until a bottom is hammered out and a new uptrend is established, it is also hardly inconceivable that Groupon shares could double from current levels in short order.

In particular, if risk sentiment were to shift once again and investors start returning to growth names, Groupon would likely be a significant beneficiary. It is also important to remember that an event such as a lock-up expiry skews supply/demand dynamics and could push the stock well below its fundamental value in the near-term, hence creating opportunity for longer-term investors.

The issue is particularly relevant lately because Facebook's lock-up expiration will be here before you know it. Facebook shortened its lock-up expiration to Sunday, Aug. 19. At that point, insiders will be able to sell some 271 million shares. That has the potential to wreak similar havoc on Facebook's share price.

Groupon was trading Friday afternoon at $9.77, down 8.2%. Facebook was trading at $27.67, down 6.5% on the day. 

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