Tuesday, August 21, 2012

Facebook (FB) Investors can Relax, Groupon Inc (NASDAQ:GRPN) Is Much Worse Off [IPO Analysis]

With everyone focussing on Facebook Inc(NASDAQ:FB)’s shares and how investors have lost their wealth and employees their morale, the fact that there are companies much worse off than the social networking site has been completely overlooked.

Nobody talks about them…Look at daily deals site Groupon Inc(NASDAQ:GRPN), for instance.

Facebook’s shares have halved in value from their IPO debut in May. Groupon's shares have crashed more than 80 percent since the company went public in November last year.

Groupon has been recently whacked by news by one of its early investors, Marc Andreesson who has been offloading his stake in it.

So what is it with the Groupon story?

The story unfolds about ten months prior to Groupon's IPO. The company entered into an unusual stock deal, extraordinary even by Wall Street's elastic standards.

Early investors in the company were allowed to exit from it, selling about $946 million worth of stock to another group of new and eager investors who were excited about its growth story. They bought into it because they wanted to be part of this high-growth firm which had a sure-fire revenue model.

Can Shares of GRPN Rebound After The Recent Turmoil? Find Out Here

Among those who cashed out in the early stage was Chairman Eric Lefkovsky who took in a neat $318 million and Andrew Mason who took out $31 million worth of stock. Those deals were done at $7.90 a share.

Then the company listed its shares at $20 each. On the day it listed the shares went above $30 before settling down at more modest levels.

Since then, however, it’s been a one-way downward street for the stock. Currently it’s trading at a little more than $4, a steep fall of nearly 80 percent.

A lot of the late-stage investors have also managed to cash out when the going was still good.

According o the Wall Street Journal those who sold include Maverick Capital, Fidelity, Swedish Investment firm Kinnevik among others.

However those who haven’t sold and have been forced to see the stock getting thrashed daily are T. Rowe Price, Morgan Stanley Investment Management and Technology Crossover Ventures.

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