June 1, 2012 at 12:52 PM ET
Shares of daily coupon site Groupon were down 9 percent at $9.65 Friday as the lockup period following the company’s initial public offering expired, freeing up more shares to be sold in the market.
A sharp decline in the broader stock market might have also been a factor in Groupon’s share drop. Stocks fell sharply Friday after a report showed job growth in May was the weakest in a year.
Companies and the banks that underwrite their IPOs usually enter into lock-up agreements that prevent company insiders from selling their shares for a certain period of time, usually six months, after an IPO takes place. The lock-ups are designed to give some stability to a newly-public company’s stock price.
A mass unloading of shares by insiders is usually negative for a stock’s price. However, Ken Sena, Evercore Partners analyst, explained that he doesn’t think Groupon insiders are likely to sell their shares because Groupon’s share price is now about half of where those company insiders received their share allocations.
Groupon’s share price has slumped over 50 percent since it went public in November. The deals website has faced questions over the effectiveness of its coupon offerings, and the threat of a growing number of competitors in the daily deals space.
Facebook, another social media name that went public in mid-May, is also in a lockup period, which lasts for just 90 days.
Facebook’s share price remains below its offering price of $38, after the No. 1 social network’s initial public offering went awry, losing hundreds of millions of dollars for individual investors and raising questions about the fairness of Wall Street stock offerings.
After Facebook’s botched IPO, a number of companies are putting their plans to go public on ice, worried that investors have a low appetite for investing in new stock offerings.