Shares of Groupon
After a company's initial public offering, insiders and employees are prohibited from selling shares for a specified period of time, known as the lockup period. Typically, when the lockup expires, the paper millionaires cash in their chips -- ultimately flooding the market with additional shares. Given the nature of this process, it isn't unusual for a stock to tumble once the post-IPO lockup is lifted. Just look at shares of Demand Media
The company's made a name for itself as the publisher behind well-known websites including eHow.com and Livestrong.com. Yet when the 180-day lockup period ended last July, shares of Demand Media fell 7.45% to $10.69 a share. Today the media stock trades at $9. When Pandora's
But I don't think Groupon will enjoy the same fate as LinkedIn and climb to new highs in the months ahead. Shares of the deal-of-the-day site have lost more than 50% of their value since going public last year. And I'm afraid the stock will continue on this trajectory.
Groupon on sale
I hate to seem bitter, but I'm not yet ready to forgive and forget Groupon's blatant disregard for its shareholders. Who can ignore the stunt management pulled in its first quarter as a publicly traded company? For those who need a refresher: Groupon was forced to restate earnings after it wrongly inflated its quarterly revenue by $14.3 million and slid various operating costs under the rug.
You would think Groupon would have learned its lesson after the pre-IPO investigation into its misleading S-1 filing. Nope. Management continues to put its needs before the needs of its shareholders. But tricky accounting practices and a high volume of insider selling aren't the only factors giving investors pause.
Another problem is that the business model is relatively simple to replicate. This has allowed for other big names such as Microsoft, Amazon.com
While I love a good deal, I can't justify buying the stock here despite its fire-sale price. At this point, I don't have any faith in Groupon's core business, which is why I'm sticking with my CAPScall of underperform. The company's problems are more than mere growing pains. There are plenty of other, more profitable, opportunities available to investors, which don't carry the heavy load of risk that currently weighs on shares of Groupon.
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Fool contributor Tamara Rutter owns shares of Amazon. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Amazon.com and LinkedIn. Motley Fool newsletter services have recommended buying shares of LinkedIn and Amazon.com. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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