While many investors believe that the future of the stock market rests in the rise of social stocks, companies such as Groupon and Zynga are proving that may not be the case.
Groupon, the once lucrative daily deals site, has collapsed onto itself this past year, losing more than 80 percent of its value from the year previous. In fact, the stock has fallen from as high as $24.58 in February to a historic-low $5.30 on Jan. 1. The troubling fall from grace has led Groupon’s Board of Directors to question founder Andrew Mason and the future direction of the company.
During the holiday season, Mason was hoping for an uptick in revenue with the purchase of CommerceInterface, a web-based management platform to help streamline the firm’s operations of its Groupon Goods unit (a platform that sells discounted physical products such as jewelry or electronics), but unfortunately it hasn’t been the case.
The most likely culprit of Groupon’s steep stock slide can be attributed to the influx of daily deals websites (such as Living Social and Dailydeals.com), which has stirred a negative reaction from small business owners who feel taken advantage of as they too look to stay competitive in the market.
As of closing time on Tuesday, Groupon Inc. rests at $4.84 and has shown a steady decrease since Jan. 12.
Meanwhile, Zynga hasn’t faired any better. The social games platform has dropped from $14.69 in early March to just $2.36 in the span of nine months (83 percent drop). In turn, the firm has opted to cut costs at every possible corner. In December, the company announced that it shutdown the production of PetVille and Mafia Wars 2. The two games have been a result of a company-wide cost-cutting plan to pull 13 Zynga titles from the interactive shelves. The company also announced that it will cut its investment of the social game The Ville.
In the same month, Zynga cut up to 5% of its full-time workforce, a sign that may reveal tougher times ahead. The company closed Tuesday afternoon at $2.42.
If the companies do not rebound in the next year, their stocks are currently low enough for private equity firms to take over.