Short sellers have targeted Groupon in the days after its initial public offering, as they did social network LinkedIn after its debut earlier this year.
The online coupon seller sold shares last week and saw them jump 31 per cent from their $20 (U.S.) IPO price in the first day of trading.
The shares were still 21 per cent higher by Thursday. But, when it first became possible to short the shares this week – meaning to borrow them from another investor and sell them, hoping to later buy them back at a lower price – short sellers borrowed nearly all the available shares, according to Data Explorers, which tracks stock lending.
“There’s a perception the company is overvalued right now. There are analysts who make a strong argument it’s worth not much more than $8 a share, who believe it’s an IPO that doesn’t live up to the hype,” said Mike Bellafiore, head trader at SMB Capital.
As of Thursday morning, 5.5 per cent of Groupon’s free-floating shares were shorted, or nearly 100 per cent of the shares available to be loaned out, according to Data Explorers.
That trails well behind LinkedIn, which has 45 per cent of its free-floating shares being shorted, among the most of any US IPO this year.
However, Alex Brog, analyst at Data Explorers, said Groupon’s smaller short interest may be a reflection of the tiny float, and it will take time for lending to ramp up, as it did for LinkedIn.
Groupon sold less than 6 per cent of its shares in the IPO, the smallest of any deal since 2001. LinkedIn sold less than 10 per cent, still far less than the average of more than 20 per cent, according to Ipreo, a capital markets data and advisory group.
“Almost all the shares that can be borrowed are out on loan, meaning it would be hard to short more of the stock. Investors are prepared to pay the highest fee to borrow the stock before shorting it,” said Mr Brog.
However, there is also less bearish sentiment on Groupon, in part because of its relatively restrained first-day “pop.” Groupon’s 30 per cent jump was mild compared with LinkedIn’s near doubling in price.
Figures from the TIM Group, which tracks brokerages trading recommendations, show that brokers are recommending equal portions of long and short trades on Groupon, while LinkedIn has twice as many short as long recommendations.
LinkedIn’s shares were also still 67 per cent higher than their IPO price of $45, trading at $75.25 as of midday on Thursday.
“A lot of people also thought that LinkedIn was going to drop at the beginning as well,” said Mr Bellafiore. “That might be the thinking here.”