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Groupon tanks as lockup for insiders ends

Posted at 3:15 PM, Jun 01, 2012
and last updated 2012-06-01 14:58:30-04

Julianne Pepitone

NEW YORK (CNNMoney) – Groupon’s first six months on the stock market have been nightmarish — and the drama continued Friday, the first day that some company insiders were allowed to dump their shares.

Groupon’s stock fell as much as 10% Friday morning to a new low of below $10 per share, and held around that point in the afternoon. Shares are down nearly 20% this week alone.

Groupon made its debut on the Nasdaq on Nov. 4. Like many initial public offerings, the deal included a typical 180-day “lockup” agreement for insiders. That provision prevented certain early investors from unloading their Groupon shares until the end of the six-month period, which expired Friday.

It appears that some investors took advantage of the opportunity. Volume was high, with more than 18 million shares changing hands as of afternoon trading.

The post-lockup slump isn’t exclusive to Groupon. Shares of other newly public Internet companies, including LinkedIn, fell after their expirations too.

The rest of the year hasn’t been much better for Groupon. The stock is down more than 53% so far in 2012.

Should have sold to Google? Friday’s decline brings Groupon’s market capitalization to about $6.3 billion. That’s not much higher than the $6 billion that Google reportedly offered to buy Groupon in December 2010.

Groupon chose instead to go public, and navigating life on Wall Street has proven difficult.

As soon as Groupon disclosed its financials in its June 2011 IPO filing, critics slammed the company for its unorthodox accounting measures. That led to several downward revisions of Groupon’s financials as it adopted more conventional metrics.

Despite that, Groupon shares soared about 31% on their debut day. But the gains didn’t last long. A few weeks after reporting its fourth-quarter financial results, Groupon was forced to revise its quarterly income and sales lower, thanks to a higher rate of customers asking for refunds.

In that same statement, Groupon revealed that its independent auditor uttered the dreaded phrase “material weakness.” Ernst & Young’s 2011 audit report found that Groupon had a deficiency in its financial statement close process.

Groupon has since taken steps to resolve that issue, and last month the company reported narrower losses and better sales than analysts had expected for the second quarter.

There hasn’t been any major news specific to Groupon other than the lockup expiration to explain this week’s sell-off. But several Internet companies have tumbled along with Facebook. Since the social network’s IPO two weeks ago, Facebook shares are down more than 20%.

Facebook investors will eventually have to face the similar challenge of dealing with a lockup expiration. But Facebook’s lockup period is tiered. While many insiders will be able to sell shares after three months, on Aug. 19, some big investors are required to hang on for about seven months or even a year.