With Groupon Inc (GRPN)’s shares plunging to a new low on Friday, some of its early backers, including Silicon Valley veteran Marc Andreessen — whose VC firm ‘Andreessen Horowitz‘ was responsible for $40 million of the $950 million investors put into Grupon just months before the company’s IPO — are heading for the exits, joining other investors who seem to have have lost faith in the beleaguered social-media sector, the WSJ reported on Monday.
As this chart shows, Groupon has been in a downward trend since going public last November, joining other internet busts such as Facebook (FB), Yelp (YELP) and Zynga (ZNGA). On Friday, shares of the daily-deals company closed down 5%, at $4.75, after having dropped to a new low of $4.51 earlier in the day. More than 10 million shares were traded. The stock gave up 36% during the week.
GRPN’s consistent nosedive, a decline of more than 75 percent from its offering price, prompted major company shareholders to rush for the exits as soon as a lock-up on insider sales expired June 1.
According to the Journal, Andreessen Horowitz sold its 5.1 million Groupon shares shortly after expiration. Along with Andreessen, other investors from Groupon’s pre-IPO fundraising are stepping back. Hedge fund Maverick Capital Ltd. significantly reduced its Groupon stake to fewer than 2 million shares at the end of June from 6.33 million shares at the end of March. Mutual-fund giant Fidelity Management & Research Co. sold about a third of its Groupon shares between April 1 and June, according to the Journal. Swedish investment firm Kinnevik said in June that it sold its entire 8.38 million Groupon shares, which it had held since fiscal 2010.
Groupon’s stock-price decline accelerated last week after the company missed 2Q revenue expectations for the second time in three quarters as a public company. The Chicago-based company reported a 45% sales increase to $568.3 million, compared with $392.6 million in the second quarter 2011, missing a $575.3 million estimate from the Street. Groupon also said income from operations for the quarter would be $45 million to $65 million, below expectations of $70 million to $80 million by Wall Street analysts. Furthermore, the company projected that revenue growth in the next quarter would be just 2.9 percent.
It’s clear that such slow growth will continue to negatively affect shareholder sentiment and consequently the stock. The day after the earnings were announced, Groupon shares slumped 27%.
After rejecting a $6 billion takeover bid from Google (GOOG) in December 2010, Groupon’s stock, at the time one of the hottest names in the tech sector, closed above $26 on its first day of trading, up from its $20 offering price, giving the daily-deals company a market cap of $13 billion.
Needless to say, things have gotten progressively worse as Groupon’s market value has plunged in the last nine months by about $8 billion, currently standing at just over $3 billion. Quite a hair cut indeed.
The carnage in Groupon shares has prompted one major question: Is it finally time to buy or is the stock pink-sheet material? What say you?