The “quiet period” is a requirement that a company’s insiders and underwriters are not allowed to make comments about its IPO. It’s a bit archaic, but traders like to follow it.
Why? When the quiet period ends 40 days after the IPO, the underwriters’ analysts can start putting recommendations on the stock. As should be no surprise, they usually are upbeat. After all, the underwriters probably want to get some follow-on business, such as secondaries and acquisitions.
In the case of Groupon, the quiet period expired today, and the stock surged 9% Tuesday in anticipation of bullish comments.
They never came.
Interestingly enough, various analysts were lukewarm, such as RBC Capital, Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS). The ratings “range” from neutral to sector perform to hold. Even for the bullish analysts, the top price targets were only $29. Consider that Groupon currently is trading at $22.
So what’s bugging analysts? A general theme is valuation. The fact is Groupon’s market cap fully factors in much of the growth expectations.
The stock also has plenty of risk. Groupon has tough one-for-one competitors like LivingSocial (the company is in the process of raising $400 million). But Google (NASDAQ:GOOG) also poses a big threat. Just yesterday, the company purchased Clever Sense, which developed Alfred — a mobile app for restaurant recommendations.
Groupon also been decelerating its marketing expenditures, which should help improve short-term profitability but could be a drag on the revenue ramp.
Investors should be cautious going forward with Groupon. If a company’s underwriters get skittish, it could mean a rough time for the stock.
Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.