Friday, December 2, 2011

Groupon: A Broken IPO

The Internet deal website Groupon (Nasdaq: GRPN) priced its initial public offering (IPO) at $20 per share on November 3, 2011. When the shares began trading the next day, GRPN opened at $28 per share -- a 40% jump. The hype surrounding a new IPO is usually the main driving force behind a rapid run up (or "pop") such as this one.

However last week, the share price of Groupon dropped below the $20 IPO price. Stock traders call an IPO that has dropped below its initial offering price a "broken IPO". So, Groupon is now considered a broken IPO. Could it be that the market for online coupon and deal sites is saturated? Groupon certainly has a lot of competitors, as was mentioned in this post about websites similar to Groupon.

I have written about buying IPOs before on PFStock. While getting into an IPO can be a way to make money quickly, I have warned that not all IPOs go up in price. A point that I will again underscore is that buying an IPO can involve significant risk! This appears to be the case with Groupon.

Disclosure: I do not own any interest in Groupon.

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