Groupon shares drop below $20 IPO price for first time

grouponThings were looking pretty good for Groupon when it went public on November 4. Shares in the daily deals company rose on the first day of trading by around 50 percent on its launch price of $20 per share, though it soon settled at around $26.

This week, however, Groupon’s share value has tumbled, and on Wednesday fell 16 percent to $16.96 per share, taking it below the launch price for the first time.

Groupon raised $700 million in its IPO, impressive for a company that only started doing business in 2008. Indeed, it was the largest IPO by an American Internet company since Google raised $1.7 billion back in 2004.

Speaking to the New York Times about Groupon’s share price drop, Paul Bard, a director of an IPO advisory firm, said, “In the environment we’re in right now, investors are wary of risk, and so these less-seasoned companies will naturally face more selling pressure.”

Fears of increased competition from rivals such as Amazon-backed LivingSocial and Google Offers has also caused some investors to offload their shares, said a Reuters report. The cut-throat daily deals business has already reached saturation point, with many rival companies going out of business in recent months.

“When returns turn negative, that creates a problem for the IPO market because what’s the incentive to buy into the next IPO?” Bard said. He added, “Bankers are now probably revisiting how many and which deals they will launch.”

The sharp fall in Groupon’s share value will certainly be a matter of serious concern for other technology companies – Facebook and Zynga among them – which are considering an IPO in the near future. A report a couple of months back suggested Facebook would wait until late 2012 before going public – looking at the way things are going for Groupon just now, holding on until a later date like that will probably be the route many technology companies will decide to take.

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