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Groupon stock plunges 9.9%, triggering circuit breaker

Groupheadquarters Chicago.

Groupon headquarters in Chicago.

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Updated: October 19, 2012 6:13AM

Groupon’s stock plunge Monday of nearly 10 percent set off Nasdaq’s short-sale circuit breaker aimed at keeping short sellers from manipulating a stock.

The stock dropped as low as $4.74 a share before closing at $4.75, off 52 cents or 9.9 percent, on renewed concerns that the online daily deal site faces slower growth, greater marketing expenses and mixed loyalties among its merchant customers.

The quick drop triggered Nasdaq’s circuit breaker, which takes effect when a stock drops more than 10 percent and restricts the prices at which a stock can be sold short, MarketWatch reported. Groupon could not be reached to comment.

Two analysts’ reports and a trends report released Monday outlined the problems. Raymond James analysts released a survey showing one-third of Groupon’s merchants either “unsatisfied” or “very unsatisfied” with the Chicago company’s promotions, known as Groupons, and 39 percent unlikely to run another Groupon deal for the next couple of years. The top complaints were a high commission rate and a low rate of repeat customers, according to the survey report.

The Raymond James survey of 115 Groupon merchant customers revealed that only 4 percent of the merchants said their Groupon promotion was “highly profitable.” Thirty-seven percent said it was “slightly/modestly profitable”; 26 percent said they “broke even,” and 32 percent lost money on the deal.

Merchants ranked Groupon tops in number of incremental customers and increase in brand awareness, but rival LivingSocial got the top ranking for commission, customer quality, payment terms and return on investment.

Evercore Partners analyst Ken Sena put Groupon on his “conviction sell” list, citing its dependence on marketing to grow its Groupon-buyer base of customers.

Also Monday, a BIA/Kelsey study showed the online deals market will accelerate for a short while before slowing for the long term. The study said that while consumer spending on online deals is projected to skyrocket 86.9 percent, to $3.6 billion, this year compared with 2011, that growth will slow to 23 percent in 2013 and trickle to single-digit growth in later years as people tire of the come-ons and the most successful companies consolidate in a maturing marketplace. Spending is projected to reach $5.5 billion in 2016, according to BIA/Kelsey, which is hosting a digital marketing conference in Chicago this week.

Groupon’s stock has lost 76 percent of its value since it went public last November.

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