6. Morgan's Groupon Mistake
(Originally published August 17, 2012)
. They simply have no clue when to jump off the
(GRPN - Get Report)
Shares of Groupon got smacked Tuesday, sinking more than 27% after its quarterly revenue missed Wall Street estimates because of a weakening European economy and, let's face it, the novelty wearing off of its high-margin daily deal business. The company's stock fell to $5.50 on the report and is now down more than 80% since it touched a high of $31.14 on the day it went public last November.
Of course, a lot has happened since then. None of which, however, was predicted by the future-tellers at Morgan Stanley, much to their chagrin and their clients consternation.
Let's quickly review the mess Morgan's research team has made of this stock, shall we?
Back on Nov. 4, 2011, Groupon sold 35 million shares at $20 each, above the initial range of $16 to $18 mind you, raising $700 million and valuing the company at nearly $13 billion. Groupon CEO Andrew Mason spent the day gloating at his good fortune. And lead underwriter Morgan Stanley was beaming, confident that its Groupon success would show the folks at the still private
that it had the chops to do their highly anticipated deal.
Oh, hindsight. How it makes one want to kick oneself in the behind sometimes!
Anyway, forty days later with the stock trading near $23, Morgan initiated the stock with an equal-weight rating and a $27 "fair value" target. Fair enough. At the time Morgan was trying to prove the integrity of its research, as opposed to second lead
which gave Groupon a buy rating and a Street-high $29 target. (Good grief Goldman! Is there anything you won't do for a banking client? Did you learn nothing from last bubble's eToys episode?)
In retrospect, both banks should have slapped a sell rating on Groupon because the stock sank to single digits over the next six months. In mid-June, however, Morgan took a stand and upgraded its view to a buy with an $18 target. Wrote Morgan's analyst at the time, "We believe the recent sell-off of Groupon shares represents a strong buying opportunity."
Yep, cue the behind-kicking if you took Morgan's advice and bought the stock back then.
Or you know what. Don't self-flagellate just yet. Despite Tuesday's massive selloff, Morgan posted an overweight rating and a $9 price target on the stock on the belief that "Groupon is still the best positioned company to crack the local eCommerce enigma."
Seriously, feel free to put your boot down. Thanks to Morgan, there's still money left to lose and plenty of time to kick yourself.