While other IPOs such as LinkedIn and YELP have had tremendous recent success, social buying startup Groupon has been on a bit of a roller coaster ride and it looks like they just went over a steep drop. The stock is down over 10% today on news that four-quarter revenue and income is down due to a higher than expected number of customers asking for refunds.
Groupon is a social buying service that allows users to buy specific items at discount as long as a large number of people participate in a given deal. For example, a massage parlour can offer 30% off their regular price, as long as 100 people purchase the deal. This incentivizes users to invite their friends to participate in the deal, and if the 100 number is hit, the deal is activated.
The problem is that a lot of businesses have not prepared themselves for the influx of customers, and the poor service has sometimes led to users demanding refunds. Another anecdotal reason for the refunds is that the deals are often so enticing that people begin to hoard massive numbers of deals, but then realize they probably won’t need to cash in on 6 massages in the next few months. Read more about the refund issue here.
As we can see in the chart, the stock began to rebound after a big hit in November during the IPO, and had reached heights above 20. As reported in MarketWatch, Justin Post of Bank of America/Merrill Lynch had recommended a buy on the stock, but the company has not performed as well as hoped.
“Groupon has been our most disappointing call in 2012 as we thought 4Q margin upside, a rebound in 4Q take rates, and data suggesting an improving competitive landscape would improve sentiment on the stock,” wrote Justin Post of Bank of America/Merrill Lynch in a note to clients on Monday.
This is a far cry from when Google was attempting to buy the company at a valuation of $6B, although today’s price does have its market capitalization at $8B… but that number is falling fast.