Groupon Shares Fall Well Below $20 IPO Price, Close at $16.96

It's been another rough day for Groupon shareholders.

Shares of the Chicago-based daily deals site closed Wednesday at $16.96, down 15.50 percent from the previous close of $20.07. This follows a nearly 15 percent drop on Tuesday.

The price of the stock fell below its initial public offering price of $20 for the first time Wednesday.

The momentum is negative now and it is likely to continue negative until they have something positive about the company, Edward Woo, an analyst at Wedbush Morgan told Reuters regarding the stock.

There was a lot of negative sentiment heading into the IPO, the IPO surprised a lot of people, it was much stronger than expected, Woo continued.

The first day on the market, shares of Groupon began trading at $28 a share. The stock price reached its all-time high of $31.14 that day before falling to $26.11 at close.

At the time of the IPO, the company's market value was $12.7 billion. That number was well short of the $25 billion market value the company sought earlier this year.

However, analysts believed that number was still overvalued. Although the company has shown enormous growth, that growth hasn't yet turned into profits. In the most recent quarter, Groupon posted a net loss of $10.6 million. Morningstar predicted last month the company would not reach profitability until 2013.

Much of the losses can be attributed to high marketing costs.

We are currently spending more than just about any company ever on marketing, CEO and co-founder Andrew Mason wrote in an internal memo to employees in August. In Q2, we spend nearly 20 percent of our net revenue on marketing, while a typical company spends less than 5 percent.

Why do we spend so much? The simple answer is 'because it works,' Mason continued.

This allowed Groupon to become the dominant player in the daily deals market, controlling 49 percent of the market share compared to rival LivingSocial's 21 percent share. But to soothe investor concerns, the company agreed to pull back on marketing expenditures before the IPO.

Groupon initially planned on going public this summer. However, the company pulled back amid a volatile stock market and concerns over accounting techniques used in the company.

Groupon isn't the only recent public company whose shares have gone underwater. According to analytics firm Dealogic, companies that went public in 2011 are down on average 8 percent from their IPO price.