I know what the author is trying to say, but the way it's being said doesn't resonate with me. GRPN may fall to half its IPO price, but it won't be a half price deal, it will simply be worth less today than it was at IPO time.
The markets for stocks behave very differently than the markets for, say, spa treatments, in large part because nobody has commoditized spa treatments. Buying a spa treatment for half off doesn't say something about the market valuing it differently today than yesterday, it says something about the spa's marginal cost of offering a treatment during an idle time slot and price discrimination.
Whereas, GRPN's price says something about market segmentation alone: The folks who bought the hype have all bought the stock and now it will trade according to the expectations of the rest of the market.
I know, I know, but I couldn't resist the opportunity to explore the ideas of how the markets differ. As for kicking them while they're down, given that the founders have already walked away with the money, the people getting "punished" are employees and the sucker investors who bought the story.
People will probably call for stricter lockup periods, but as long as investment banks and VCs are allowed to get rich flipping IPOs, this sort of thing is going to keep happening. These founders were just ruthless enough to get themselves a seat at the dinner table instead of being the servants ladling out the soup.
the recent decent of the groupon stock price was imho too predictable to be true.
I bet there will be some rebound and short squeeze soon because 95% of the stocks are still not publicly traded and GRPN will do everything to keep the stock price near the IPO price for some time.
1. Why would management care about the price? The founders and early investors have already taken a lot of cash out. (one of warning signs in this IPO, btw)
2. I expect it's (mostly) illegal for a company to manipulate their stock. One option is to buy back shares, but I doubt that's a good use for their cash at this stage.
3. Even if illegal methods were an option, how would they keep the price up?
3. Short squeeze, like the parent said - although not done by Groupon, it'll be done perfectly legally by some institution that owns a lot of Groupon.
They make a hunk of their shares available for borrowing by people who want to short the stock. Since a lot of people want to short Groupon these days, they take advantage of the stock's availability to do so - which serves as a negative indicator and drives the price down.
Once the price has been driven artificially lower by the pent-up short demand, then good or even neutral news about Groupon will panic some of the shorts, forcing them to buy to limit their losses - but since the Groupon float is so tiny (there's not that many shares out there), the panic buying will cause the price of the stock to jump sharply. That in turn panics more of the shorts, which inspires more buying, which raises the price more, which inspires more buying...
Remember, when only 5% of a company is publicly traded, the price of the stock has a lot more to do with its traders than the company. No one's trading on fundamentals here - right now people are just playing supply and demand games with the dumb money.
I could be wrong, but I predict some crazy whipsawing of the stock price in the months ahead, with the institutions who brought Groupon to market making money on the way up and on the way down.
I suspect everyone that is surprised about Groupon's IPO have actually never followed one before. The IPO price is completely arbitrary, it's chosen before the stock is on the open market. It's a guess, and falling below that price doesn't have that much meaning. I thought GRPN's initial price was too high anyway
The markets for stocks behave very differently than the markets for, say, spa treatments, in large part because nobody has commoditized spa treatments. Buying a spa treatment for half off doesn't say something about the market valuing it differently today than yesterday, it says something about the spa's marginal cost of offering a treatment during an idle time slot and price discrimination.
Whereas, GRPN's price says something about market segmentation alone: The folks who bought the hype have all bought the stock and now it will trade according to the expectations of the rest of the market.