Groupon’s stock has fallen precipitously during the last three days. Today, it broke below the Chicago-based couponers IPO price of $20.00 for the first time. At a recent price of $17.41, any IPO investors who were still holding on to the stock would be down nearly 13%.

Someone who bought at retail at Groupon’s 52-week high of $31.14 (shortly after the stock debuted) would be down 45%.

As with many stock movements, it’s impossible to pinpoint a specific cause. Here are some likely candidates:

  • Short-selling of Groupon has become easier this week. The cost to borrow the stock to sell short has dropped. Last week, it would have cost 99% on an annual basis to borrow the stock. This week, it was in the 20s. According to Cory Johnson of Bloomberg West, the borrow cost has gone from stupid expensive to pretty expensive.
  • Sources tell me some insiders had lockups much shorter than 6 months. They may be looking to cash out.
  • Some brokers had restrictions that if people flipped their Groupon stock immediately, they would be barred from future IPOs. For example, when I put in my indication of interest to buy Groupon at the IPO price, I was advised that if I sold before Nov. 21, I would be restricted from future IPOs. (I received no shares; if I had, I would have flipped immediately.)

Just as important, Groupon has always been a momentum play. If the sentiment is that it is going to fall, it will fall.

This is an even bigger risk for Groupon than for most companies: Groupon’s cash flow is highly dependent on merchants continuing to offer Groupons and consumers buying Groupons. If this negativity permeates the mainstream press and consumers and small businesses begin to doubt Groupon, its whole model will collapse.

See my earlier post, Who gets hurt if Groupon collapses.

Rocky Agrawal is an analyst focused on the intersection of local, social and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.