4. Gravity Grips Groupon
Forget rhyme or reason, it was a bunch of idiotic rumors that caused Groupon's (GRPN) stock to defy the market's gravitational pull and levitate 23% last Friday. And it was a dose of good sense from Evercore analyst Ken Sena that brought it back to earth.
Shares of the online deal site descended 9% Monday to $4.25 following Sena's note dispelling the inane chatter that lifted the stock the previous trading day. The heavily shorted stock (about 21% of its shares) apparently was squeezed higher on a swirl of silly speculation, according to Sena, including talk of a Google (GOOG) acquisition.
Why were the market's old wives telling tales of Google purchasing Groupon, a company that it considered buying two years ago for $6 billion only to see its offer rebuffed by Groupon's puffed-up CEO, Andrew Mason?Simple, because Mason was reportedly canceling a public appearance this week (untrue) and an article on Bloomberg chirped the idea that Google might be interested in a second look now that Groupon's enterprise value has fallen below $2 billion (talk about flimsy). Yeah, those were some pretty dumb sparks indeed that lit the fire under the stock, now down 84% from its high-profile IPO last year. Nevertheless, sometimes that's all it takes. "We see Google and other would-be acquirers as believers in 'network effect,' which argues against renewed interest, given the current pace of Daily Deal deterioration, which we peg at negative 20% quarter on quarter, excluding the effect of other contributing factors," wrote Sena, who kept his $3 price target and his "conviction sell" rating on the stock. Sena added that the recent mass layoffs at Groupon competitor LivingSocial also bode ill for any real buying interest from Google. "It would make sense to us that the company may be exploring strategic alternatives. However, we see this as a very speculative argument for Groupon given the sizable pressures the industry is undergoing," wrote Sena. Thanks for injecting some truth into the discussion, Mr. Sena. We're glad somebody finally got a grip on the stark reality facing Groupon.
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