Groupon shares have broken below their initial public offering price of $20 and may cast a pall over other technology debuts on the public markets.
Groupon shares fell throughout the day and closed at $16.97.
For starters, Groupon has significant question marks as a business and competition from Amazon backed Living Social will be tough. In addition, it's easier to borrow shares of Groupon to short them, reported Bloomberg. A short sale occurs when you borrow shares betting that they will fall. You sell shares back lower and pocket the difference.
If any stock had enough question marks to attract shortsellers it would be Groupon.
Wedbush Securities started coverage of Groupon with a neutral rating on Nov. 17 and summed up the situation.
While Groupon has done a great job creating the fast growing market of daily deals email marketing, we believe that its leadership position is facing challenges by many new competitors. In addition, industry growth rates are likely to slow down as consumer fatigue sets in or the market reaches saturation with merchants and consumers.