Groupon (NASDAQ:GRPN) posted a better-than-expected earnings report back in May, and the stock spiked from a low of $9.90 to $13.05. But in the IPOPlaybook, I warned that investors still should be cautious.
I noted that part of the gains came from a short squeeze, which is basically good for a one-time move. But what’s more, investors also needed to be aware of the lock-up period expiration, which is when insiders are allowed to sell their shares.
Cue today’s action. The lock-up expired, and away the stock went. Groupon has fallen almost 9% under the pressure, hitting new lows around the $9.70 mark. The volume in the mid-afternoon was around 17 million shares — almost five times more the daily average!
True, there are other factors for the plunge in Groupon’s stock price. After all, the Facebook (NASDAQ:FB) disaster has been jarring for investors, and the recent instability in the equities markets has been a problem.
But investors should always keep the lock-up in mind. Why temp fate and potentially get crushed by selling? Numerous other companies — think LinkedIn (NYSE:LNKD) and Zynga (NASDAQ:ZNGA) — post-expiration plummets.
One last note: Facebook’s lock-up expiration is set for Sunday, Aug. 19. The company issued about 421 million FB shares in its IPO; insiders will be able to unload another 271.1 million the following Monday.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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