There are stocks that struggle after their IPOs, and there are stocks that crash. None in recent memory has caused as much investor pain as Groupon Inc (GRPN +5.11%). After hitting a record high the first day shares were on the market, the company's stock sank 91% over the next 12 months. Not coincidentally, it was right around the time Groupon shares were hitting their all-time low that Tiger Global Management announced that it had established a 10% stake in the Daily Deals and e-commerce company.
Over the years, Tiger has made a name for itself by investing in out-of-favor technology stocks. Usually, these plays have worked out in the organization's favor. That has helped the hedge fund grow its total value to about $7.5 billion.
After Tiger submitted its 13-F recently, the company disclosed that it has completely exited its position in Groupon. Why did it do this, and what might it mean for investors?
This could simply be Tiger taking its profits
If you're a Groupon investor who's worried why such a prestigious hedge fund has exited its position, there are plausible explanations that might help you breathe easier. Tiger originally purchased about 64 million shares sometime around November of 2011. If the average share price was about $3.00, the company's total stake likely looked like this:
|
Total Shares |
Price per Share |
Market Value |
|---|---|---|
|
64 million |
$3 |
$192 million |
Source: SEC filings, author's calculations.
Starting sometime in the second quarter of 2013, Tiger began selling its shares en masse: During those three months, it shed 72% -- or 46 million shares -- of its total Groupon investment. That trend continued during the third quarter, as the company trimmed another 6.5 million shares. Finally, Tiger sold its remaining 11.5 million shares during the first quarter of 2014.
Though it's impossible to know the exact price these shares were sold for, Tiger likely made a killing on Groupon. Here's one possible way it may have worked out.
|
When Sold |
Total Shares |
Price per Share |
Market Value |
Gain on Original investment |
|---|---|---|---|---|
|
Q2 2013 |
46 million |
$8.55 |
$393 million |
$255 million |
|
Q3 2013 |
6.5 million |
$11.21 |
$73 million |
$54 million |
|
Q1 2014 |
11.5 million |
$7.84 |
$90 million |
$66.5 million |
|
Total |
64 million |
$8.69 |
$556 million |
$375.5 million |
Source: SEC filings. Price per share represents value at end of quarter
In less than two year's time, Tiger was able to turn a $192 million investment into $556 million in cash -- a roughly 190% return.
Tiger's decision to sell its entire stake could simply have been a sign that the company wanted to take its profits and either invest them elsewhere or give them back to their investors.
But there are lingering questions
While I have no doubt that profit-taking explains the vast majority of Tiger's decisions, I also think it speaks volumes that the hedge fund saw no reason to leave skin in the game. Since late September of last year, Groupon has lost more than half of its market cap. Tiger may have been onto something when it started selling.
Since going public, Groupon has had to transition away from being a local-deals destination. Not only was competition heavy and a sustainable moat non-existent, but many of the organizations that decided to use Groupon to drum up business later saw it as a losing proposition.
Groupon decided to diversify itself by becoming an online seller of physical goods, as well. The company has dubbed this new category Groupon Goods, and during the first quarter of 2014, this segment accounted for more than half of all revenue.
But while revenue has increased at a healthy clip, profit has not. Even after the stock's recent fall, shares trade for a pricey 85 times earnings. With much stronger and more entrenched players already having established dominant positions in online retail, investors might want to reconsider whether or not Groupon shares are worth holding for the long haul.
