The past 6 market days have accumulated to a 45% increase in Groupon's (NASDAQ:GRPN) stock price. This is a large move that cannot just be explained by fluctuations in the market. The events that are supposedly responsible for this include: large stock purchases by "smart money", a stock rebound after hitting a 52 week low after 3Q 2012 earnings call on November 9th, Groupon's opening of a 4K square foot "concept store" in Hong Kong, and the notorious short squeeze.
Reason 1# Smart Money
On the, so to speak, smart money note, Tiger Global has recently taken a 9.9% stake in Groupon. The hedge fund purchased 65 million shares in Groupon. At Friday's close of $3.95, that stake was valued at $320 million. The news comes a week after George Soros and Paul Tudor Jones disclosed their recent purchases of Groupon's stock in Q3. A lot of "smart money" has been poured into a company that's dealing with some serious challenges. Tiger Global is not backed by a good history of large purchases in the Internet Sector, in the past it has taken large stakes in Yahoo (NASDAQ:YHOO) and Facebook (NASDAQ:FB), which have decreased significantly since their purchase price.
Reason #2 Bounce on 52 Week Low
Since Groupon's IPO, the stock has fallen 85%. Recently, the downward trend has picked up pace falling from roughly $8 in August to a low of $2.60 on November 12th. Traders have been looking for this trend to hit resistance in order to catch the upside on the famous bounce on the 52 week low. The three days after the response to the 3Q 2012 earnings call the stock price barely moved up or down, hitting a significant amount of resistance. Right after this three day period of the stock resisting to fall lower, the stock shot up drastically over the next few days, resulting in a bounce on the 52 week low.
Reason #3 Concept Store
Earlier last week Groupon opened a 4K square foot "concept store" in Hong Kong it says will allow visitors to "experience the Groupon lifestyle" and pick up products purchased on Groupon's site. This can be seen as a desperate measure by the company as changes to its online infrastructure to a land based one which has proven futile by the retailers like BestBuy (NYSE:BBY) in the past year. Another desperate example is Groupon's "always-on" deals that have no end date. The deals, initially available in New York City and Chicago and totaling 27K can be browsed and searched for on Groupon's site.
Reason #4 Short Squeeze
This past May, there was a short squeeze when there where over 25 million shares shorted that prompted more than a 50% gain in just two trading days as the stock traded as high as $14.93 per share up from $9.70. Currently, Groupon's short interest has surged to the highest level in the company's history - with over 36 million shares sold short. This number was based on the short interest as of the close of trading on October 31st. Since the earnings call on November 9th the stock has jumped nearly 45%, which could be due to the short sellers covering themselves and rallying a short squeeze. If this is the case this inflation would be a false presentation of the company's value and thus would make the Groupon a good short in the options market as another short squeeze could potentially hurt the small investor as he/she will be forced to cover.
Groupon Poised on Downhill Slope
In the past earnings report, Groupon missed revenue forecasts by less than 4%. But, total third party revenues declined by $79.4M, or 16% from prior quarter. Additionally, some people suggest that Groupon's $1.2B in cash and no long-term debt provides a major support for the stock. Rather, the majority of the cash on Groupon's books is offset by its obligations towards merchant partners. Groupon's current assets only exceed its current liabilities by roughly $280 million. Further, Groupon's core business has been challenged by a host of competitors pushing their way into the new industry of providing daily online coupons for goods and services, such as rival LivingSocial. Lately, the company has tried a list of other money-making operations, but unfortunately none seem able to give Groupon its turnaround story it so desperately is looking for.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in GRPN over the next 72 hours.