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Groupon’s Plunge: A Scary Lesson on Lock-Ups

Keep Aug. 19 in mind when Facebook's lock-up expires


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.

Article printed from InvestorPlace Media,

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