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Groupon Is Worth More Than $2.5 Billion

By - November 29, 2010

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Today’s big rumor, so far at least, is that Google may be buying Groupon for a reported $2.5 billion. This sale has been rumored for some time, but the figure – and story – is based on a rather thin piece by VatorNews which broke early this morning. The headline is honest in its lack of, er, definitiveness – Google buys Groupon for $2.5 billion?   - but it does claim one “reliable source.”

Whether or not this story plays out, my first thought was that the company is worth far more than $2.5 billion. If, as many have reported, Groupon is doing $50mm in revenue a month, that’s a mere 4.2x multiple on current run rate. Given the insanely strategic nature of the purchase to not only Google, but just about every other major player in the game (Microsoft, Yahoo, eBay, Amazon, hell, American Express if they wanted to play, not to mention Facebook), I’d be utterly stunned if Google won the company for that price. Location is a key signal connecting commerce, search, social, and small business. It’s a big, big deal, and Groupon is the leader in the space.

My spidey senses tell me someone is shopping this deal through a leak to the press, seeking to drive an auction. We’ll see.

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  • Assumptions

    This assumes that their self-reported revenue numbers are accurate. Talk to small business owners who’ve used them.

  • Sidharth

    John , 50million x 12 months = 600 million . Rumored Sale Price : 2.5 billion. It is almost 4.2 times the run rate. Not too bad for a business that does not have any secret sauce except for the first mover advantage. It would be justified.

  • http://battellemedia.com John

    @Sidharth yes, sorry, I corrected that – I transposed.
    I stand by the word “mere” given how strategic this buy would be, and how reasonable such a multiple is, especially compared to similar multiples for, say, YouTube or DoubleClick, which were way higher.

  • Craig Rachel

    Its impossible to value Groupon one way or another knowing just the monthly revenue.

  • http://bateshook.com/blog Uwe Hook

    Don’t agree. Groupon is worth much less. Their business model can easily be replicated and their merchants are most often than not unhappy customers. I wrote on my blog about it

    http://is.gd/hXcOA

  • http://www.cannedbanners.com Myles Younger

    I like your auction theory, John.
    Now playing the cynic: I don’t see a lot of added economic value in Groupon’s business model, plus it can be very easily replicated (as pointed out by Uwe). Sure, there’s a little value added in the way Groupon aggregates and efficiently distributes coupons to consumers (keeping in mind they send me 2 emails every frikkin’ day…seems like they are on the road to burning out their user base). However, businesses can’t ALL slash their prices ALL the time, and insane deals are what attracts consumers to Groupon and keeps them coming back. Without the insane discounts, Groupon suddenly becomes pretty boring. It’s a classic law of retail: you can’t put everything on sale all the time; not only does that erode (or eliminate) profit margins, it erodes the perceived value of the products/services. Coupons are an age-old marketing tactic, and they’re definitely going to move online like so many other commercial tactics, but Groupon hasn’t revolutionized commerce to the tune of a $2.5 billion valuation. The ridiculously deep discounts that Groupon promotes simply aren’t sustainable over the long run. Lastly, I don’t care about $50 mil reported revenue…what’s their cash flow look like?

    Myles Younger
    Co-founder, http://www.cannedbanners.com

  • http://nengrina.com/ rhien

    yes, that’s true. It is impossible Groupon value only in the $ 2.5 billion in revenue each month should Groupon value more than $ 2.5 billion