Groupon debut leads to short selling frenzy
11 November 2011 London
Image: Shutterstock
Groupon's eagerly anticipated IPO was the subject of much academic debate, now short sellers have turned the speculation into an all out share grab at a hefty premium, says SunGard.
When shorting became available to the market on 9 November, there was no rush at first, at least according to the securities lending market.
"The lending market was eerily quiet in the morning, with brokers only borrowing 95,000 shares," says Andrew Shinn, research director at Sungard Astec Analytics business unit. "Our first thought was that Groupon had successfully defended itself against short sellers by only issuing five per cent of its shares. As we later learned, however, brokers were simply filling short selling demand through internal supply."
By that day's afternoon, brokers began borrowing en masse and the wholesale borrowing cost was pushed to 8,000 basis points; total shares borrowed on 9 November was 2.4 million. Short selling demand continued to increase over the next day, with another 300,000 net shares borrowed, and the wholesale borrowing cost rose to 9,000 bps, according to SunGard research.
Groupon's valuation has been a hotly debated topic as the coupon-provider continues to see profits shrink in the face of increasing competition. Moreover, some businesses have come out with angry complaints over the company's management of its coupon programme, claiming that rather than attracting new business, they had to operate at a substantial loss.
On 4 November, Groupon IPO'd with an issuance of 35 million shares at $20 each and the share price has seen some measure of volatility though no more so than is common with the social media sector.
When shorting became available to the market on 9 November, there was no rush at first, at least according to the securities lending market.
"The lending market was eerily quiet in the morning, with brokers only borrowing 95,000 shares," says Andrew Shinn, research director at Sungard Astec Analytics business unit. "Our first thought was that Groupon had successfully defended itself against short sellers by only issuing five per cent of its shares. As we later learned, however, brokers were simply filling short selling demand through internal supply."
By that day's afternoon, brokers began borrowing en masse and the wholesale borrowing cost was pushed to 8,000 basis points; total shares borrowed on 9 November was 2.4 million. Short selling demand continued to increase over the next day, with another 300,000 net shares borrowed, and the wholesale borrowing cost rose to 9,000 bps, according to SunGard research.
Groupon's valuation has been a hotly debated topic as the coupon-provider continues to see profits shrink in the face of increasing competition. Moreover, some businesses have come out with angry complaints over the company's management of its coupon programme, claiming that rather than attracting new business, they had to operate at a substantial loss.
On 4 November, Groupon IPO'd with an issuance of 35 million shares at $20 each and the share price has seen some measure of volatility though no more so than is common with the social media sector.
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