NEW YORK (AP) -- Shares of Groupon Inc. dropped Thursday after a UBS analyst labeled the online deals company's stock a "Sell."
THE SPARK: The analyst, Eric Sheridan, said that Groupon has a "largely unproven business model" and noted that its management is in transition. He expects shares to fall further.
THE BIG PICTURE: Groupon fired its CEO and founder, Andrew Mason, in late February. It is searching for a replacement, a process that could take months.
Groupon has faced scrutiny about its high marketing expenses and enormous employee base. Its only profitable quarter since going public was the second quarter of last year, and its revenue growth has slowed.
Investors worry that consumers are tiring of the deals, such as restaurants and spas, on which Groupon built its business. The Chicago company is trying to diversify into product sales, payments services and other areas, but there are concerns that those efforts aren't paying off.
ANALYST COMMENT: Sheridan said he's cautious on Groupon because of the recent business trends and uncertainty about the company's future. New initiatives could weigh on profitability, he said.
Still, he said that Groupon does well with mobile and has an "impressive" global sales force as well as users and merchants worldwide.
Groupon declined to comment on the analysts' note.
SHARE ACTION: Groupon fell 33 cents, or 5.5 percent, to close at $5.63. The stock lost two-thirds of its value over the past 12 months.
Sheridan's target price is $4.40.