Friday, August 17, 2012

Groupon Inc (NASDAQ:GRPN) Plunges on Downgrade Prompted by Cash Concerns

Daily deals site Groupon Inc(NASDAQ:GRPN) has again come in for heavy selling and the stock is hitting new lows on Friday on heavy volumes.

In late morning trades the stock was down 8.4 percent at $4.58 with 22.77 million shares changing hands, compared to average daily volumes of 11.94 million shares. It made another new record low of $4.51.

Incidentally both benchmark indices the Dow Jones Industrial Average and the Nasdaq are marginally up on Friday so far.

The trigger for the sell-off of the shares seems to be the downgrade by Evercore Partners who has put a Sell on the stock. Analyst Ken Sena cut the shares to underweight from equal weight citing `working capital' concerns.

Can GRPN Find The Bottom Soon? Find Out Here

The stock has already lost about 77 percent from its IPO debut last year at 420 a share.

The company seems to be struggling amidst a cash crunch with expenses fast overtaking its cash inflows. The company has about $1.2 billion of cash on its balance sheet but analysts feel that it would not be enough to cover its expenditure.

“We see potential for future cash burn assuming billings declines persist as the deteriorating impact of ‘changes in accounts payable’ could be enough to offset growth in income earned,” said Sena,, in his research report.

He downgraded the shares to underweight and cut the price estimate to $3 from $6.50.

Groupon revenue model involves selling discounts from businesses such as restaurants, salons and spas. The revenue i split between it and the businesses.

Earlier this week Groupon reported weak second quarter numbers that missed analyst estimates.

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