Is This The Nail In The Coffin For Social Media Stocks?

Groupon social media stock took another big hit Tuesday as the company missed earnings estimates.  Despite a growth in sales and a profit, investors found nothing to their liking. This time Groupon blamed it on weakness in the European market.

Since the company went public in November of 2011, it has seen its capital base eroded away as more and more questions arise about how it expects to continue to grow revenues in a market that many major advertising firms are now shying away from.

The symbol lost more than 25% to close at an all-time low of slightly more than $5.50 a share. The loss, while not the biggest dollar decline since the IPO, represented the biggest percentage decline in the history of the company.

The stock has now lost more than 71% of its value in less than eight months of trading, and the sell off on Tuesday reduced the market cap of the stock to less than $3.6 billion dollars. That number is less than 60% of what Google agreed to pay for the upstart before the IPO.

Looks like Google dodged a bullet!

Executives cited many reasons for the decline in revenue, including the ever popular currency weakness of the Euro. I guess my question is when the Euro was flying, was all of the growth attributed to the strength of the currency?

Did the company ever hear of hedging risk?

The problem is really fundamental as investors thought that there was no limit to the demand for large sales packages and group discounts.  And although the demand is still very high, it appears now that it is just not going to be able to meet the impossible expectations the market placed on the stock.

So is it time to start to buy social media stocks because they can’t go any lower?

No but it might be time to react to what the market is telling us. The tape is always right, and if don’t believe that to be a fact, try and fight it!

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As Always,
Keep those stops tight.

Todd “Bubba” Horwitz

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