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Groupon Shares Continue Free Fall

NEW YORK ( TheStreet) - Shares of Groupon (GRPN - Get Report), which soared 40% two weeks ago during the daily deal site's IPO, continued to crater on Wednesday.

The stock was losing 14.4% to $17.18 in late morning trading. The session low is $16.84. Volume continued to be elevated with more than 5 million shares changing hands by midday. Wednesday's decline follows a 15% drop on Tuesday.

Groupon's fall comes amid a broader decline in buzzy Internet stocks like Pandora (P) and LinkedIn (LNKD). Shares of Pandora were down 11.5% despite beating third-quarter earnings on Tuesday, while LinkedIn slid 3.3%.

"The market is throwing out anything with high risk and uncertainty, including companies that don't have a lot of operating history," said Daniel Ernst, an analyst with Hudson Square Research.

Still, Groupon was hit harder than the Nasdaq, which was dropping 2.0% in morning trading on Wednesday.

A number of factors may be influencing Groupon's slump, analysts say.

LinkedIn, which saw shares drop after its 180-day lock-up period expired earlier this week, may have contributed to investor fears that Groupon will experience a similar decline when its lock-up ends, said Scott Sweet, senior managing partner at IPO Boutique. The business social network also saw the departure of early investor Bain Capital, which sold its entire 4.3% stake in the company.

Competition from rival LivingSocial may also be to blame. This week, the company announced Black Friday deals from over 20 national retailers including Verizon Wireless (VZ) and Electronic Arts (ERTS), which may put pressure on Groupon to ramp up its on marketing spend in response.

"A competitor has huddled up and beat the omnipotent Groupon with a neat idea," Sweet said.

LivingSocial is also rumored to be raising a $200 million funding round.

It's also become easier in the last week for investors to borrow more Groupon stock in order to short it, which may have pushed the price down, said Jeff Sica, president and chief investment officer of SICA Wealth Management.

-- Written by Olivia Oran in New York.

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