Well, now there's a new development. Bloomberg is reporting that Groupon is in talks with banks about an IPO of potentially $25 billion, over four times Google’s $6 billion price! Not a bad increase in valuation in a short four months.
But is Groupon really worth $25 billion?
First of all, as with all valuations (from lunch at your favorite restaurant, to that high-end sports car you’ve been eyeing, to purchasing stock in “the next big tech firm”), perception will play a key role in the outcome. If enough people think that Groupon is worth $25 billion, then it will be if they spend their money accordingly. The real question, then, is to consider (as objectively as possible) what the future of Groupon holds with respect to (1) growth and (2) revenue sustainability.
Why Groupon Will Grow
As mentioned back in November’s blog, Groupon has plenty of room to grow if it starts to microsegment its markets, offering particular Groupons to various market segments in each of the geographic areas that it serves. Without this segmentation, it will soon saturate the marketplace and then be up against the growing number of competitors fighting for market share in a stagnant industry.
Groupon also can grow because it continues to have the capitalization to buy out formidable competitors faster than they can establish themselves. (In fact, if you’d like to start a smart business, copy Groupon’s business model for your geographic location, undercutting their pricing by taking a smaller per unit profit, and then let Groupon buy you out when you start to grow.)
Why Groupon Won’t Grow as Fast as They Might Think
One concern put forth in November was the ease with which small competitors could enter the market with a similar business model. Basically, small competitors only need to:
- Find local retailers willing to offer steep discounts in exchange for volume (who might like to use Groupon, but have been put on a 3-month Groupon waiting list).
- Offer to do what Groupon does, but at half of the profit.
- Use slick online social marketing skills to build up takers for the offer.
- Make the retailer happy, collect the cash, and start the process over.
Bloomberg News contributor Paul Kedrosky (see his Infectious Greed blog here) points out in a recent interview another serious concern regarding growth. True tech companies that are able to rely on automation and technology to grow can at some point reach an inflection point wherein sales revenue and profits start to take off and we see substantial growth. However, Kedrosky notes that Groupon is quite labor intensive when it comes to making the deals on which the revenue model is based, thus, automation and technology are not as fundamental to how its growth occurs (with the clear exception of their use of online social media).
So, whether you’re worried about small local players, huge internet behemoths, or the labor intensive nature of the Groupon-retailer dealmaking process, you’re likely to harbor doubts about writing your portion of the $25 billion check. Then again, if the firm were to offer a 90% off Groupon deal on its own stock, maybe you’d become a Groupon Groupie after all.
What do you think? Will social media marketing continue to push Groupon into the big, or should I say HUGE, bucks? Or will social media facilitate the information transparency that will allow smaller firms to compete, making Groupon soon to be Groupoff?
An objective valuation of a market opportunity is sensible.
Be sensible.
Anthony
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Post your comments below or at Social Media Today (if you dare)...
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Not only would I worry about the smaller but very fast growing competitors like OurDeal which is relatively small right now. But if I was Groupon I would be very worried about the big boys. I am talking about Facebook, LivingSocial (Amazon) and Google Offers (Google). These three giants already and an infrastructure and customers in place, all they have to do is make the offers and count the money…..
ReplyDeleteGroupon is only another type of social media that people use to find the best deals. I believe that they should link up with all the other social network sites such as facebook, myspace, twitter and combine together to great one large organization that will combine all their great services together to become a large growing company such as Google. If not, they can still expand Groupon to become a site that would allow friends and such to share different deals with other locals.
ReplyDeleteI believe that if the company does not adapt and make changes, they will fall behind and lose lots of their market to other competitors selling similar, if not the same type of deals on their sites. The company needs to figure out the needs and wants of different regions, specifically by area in order to find and develop deals that people will want and then purchase. In the end, what matters is the revenue they bring in from the deals they are promoting, not the number of people visiting there sites compared to the other competitors like LivingSocial who is owned by Amazon. The company needs to create market segments as stated, if not they will be regretting the decision they made when they denied Google's offer! Get to it Groupon!
ReplyDeleteGroupon’s strong mark and the social media marketing will continue to help them be at the top of their market’s competitors. Additionally, their ambitious marketing strategy, such as expanding in worldwide markets, keeping up to date with social tendencies, and carefully selecting personalized high quality products at the best discount prices will continue making them build an even better reputation and expand throughout every world’s e-market available.
ReplyDeleteHolding Tight:
ReplyDeleteWhat a concept! Everyone likes to save money and now there's a site where you can go to find a plethora of money saving offers!
A bold move on behalf of Groupon to turn down the Google offer. They showed everyone that its not all about the money, however, $6 billion dollars! HOLY MOLY! I don't think I would have turned that offer down, but hey thats just me personally. I guess they didn't want to make the same mistake Roy Raymond made in 1982 when he sold Victoria Secret to the Limited Brand for $4 million dollars and found that by the early 1990's the brand was worth over $1 billion!
Growth:
There is much room for Groupon to grow. With the addition of international markets the sky is the limit! They can also re-design there website to include additional languages to tailor to different groups. Do you think that Groupon may have re-considered working with Google if they had offered to become partners?
Groupon has already entered the world of smart phones with there App that can be used with Iphone, Android, Blackberry, and any other phone with web mobile capabilities at: http://m.groupon.com/. Are they worth $25 billion? I don't think that they are at the moment, however, if Google or Amazon took them under their wings things my opinion may change.
I am interested in seeing what the Groupon company has up their sleeves. Possibly a joint venture with another company?
We shall see.. and that's the cheese.
Ally
Groupon's numerous competitors should be the company's biggest concern. Right now so many coupon websites are popping up in the US and around the world. Because they are new and are trying to make it in this highly competitive environment they are constantly coming up with new ideas.
ReplyDeleteGroupon on the other hand, although is still the number one, is loosing its ground and is pretty stagnant. I think it is due to being the first one in the field, becoming too comfortable and loosing perspective on the competitors.
In my business I experimented with LivingSocial, Groupon and Couptessa. Both, Couptessa and Livingsocial did much better jobs then Groupon. Their clients were higher "quality" (I am referencing to being more of my target market) and the ads they created for my business were creative, fun and delivered a great message. Their clients were much more prepared and better informed then Groupon's clients, meaning that they received much more information afore ahead.
With Groupon my business became a call center for weeks, because its people had no idea what they got into :). Also, other companies were more pleasant at dealing with and charged lesser percentage per coupon. Lesser percentage, while delivering a superior value - who would choose Groupon after that?
I think Groupon it’s doing a good job so far. I do agree with you as far as Groupon growing. Also, I do agree with Groupon not growing as fast because of the competitors. However, the rumors that Facebook is interested in Groupon makes me think that they are not going to last that long. They should take the money from Google or any other company and run. The reason I said that is because Facebook has over 500 million members, if they see that the Groupon idea its working, they can always start their own. If Facebook start their own copycat Groupon, it would be bye bye $25 billion or $6 billion.
ReplyDeleteThat’s the Truth,
Mauricio
Groupon is a great idea that keeps growing and growing but what about living social, that is a pretty strong competitor. I think that if groupon becomes partner with Google or Facebook that would be the ultimate unstoppable team. I think that even though groupon has the ability to buy off some of its competition before they develop into some serious competitors they can't control the whole market so they should form an alliance with some of the giant of social media.
ReplyDeleteStay Active
While doing my research on Groupon I found and interesting article that I wanted to share with you. It is about Groupon and its impressive lead in social shopping industry, and what does Groupon need to do to stay on top of its game. http://news.yahoo.com/s/theweek/20110318/cm_theweek/213326
ReplyDeleteIn Groupon's case, social media can work both for them and against them. It has worked for them in the sense that it has helped them grow to the giant that they have become but it can work against them as it can also facilitate the growth of other competitors that are jumping on the social shopping bandwagon. Unfortunately, that's the power of social media as it can boost the business of just about anyone that uses it properly. In Groupon's case though, I feel that they don't have much to worry about when it comes to it's competitors. They are so big in this industry that they will just continue to grow and it will be very difficult for an imitator company to have much of an impact. Like you stated above, they will probably be bought out by Groupon anyways (a clever tactic they are using to maintain their position). The only other competitor that they would have to keep an eye out for is Living Social which is raking right up there next to Groupon. In the end, social media will further power the growth of Groupon and it's smaller competitors will continue to be left in the dust.
ReplyDeleteI think Groupon is clever in using the recent emergence strong relative tech valuations to gain more capital but realistically its not worth anything close to $25 billion. Optimistic estimates of revenues in 2010 were $350 million, that means that at a $25 billion valuation they would making 72 times their best year earnings. A $25 billion valuation is grossly overvalued. In addition, their business model is too labor intensive and relies heavily on local negotiations with retailers which is extremely hard to duplicate on a large scale. I don't believe a $25 billion will stand up and if they do IPO at that mark then their target share price will drop.
ReplyDeleteFor any big company such as Facebook and Google who are trying to buy Groupon their biggest threat should be that since groupon strategy is so transparent, competitors can easily emerge and offer better and low price deals. But is it worth the 24 billion i would disagree. Maybe it's because they see a much bigger picture than I do but these company's can easily create their own versions. Facebook and google already have a market they cater to and are top in the industry's they serve. Because of this Groupon should definitely take the bigger deal and run with it since they are willing to but the company for the insanely amount of money.
ReplyDeleteI would recommend to Group on take what you can get and get out. Remmember friendster they we not offered as much( just about 30 million) but look at them now(yeah , they are still around .. barely). 6 Billion was a great offer, however i do not think they are worth the 25 billion ipo.I wonder if eBay ,amazon will take on such a business model. We will just have to wait and see
ReplyDeleteGroupons biggest strength right now is its brand popularity and current celebrity that it is enjoying. Groupon needs to forge strong incentives and alliances with its partners (vendors) to make sure that it has a tight grasp on its market. The truth is that the Groupon business model is so easily replicated that any of these Fortune 500 internet companies can come in and compete easily. Groupon has to continue riding its wave of success and do whatever it possibly can to keep their users and vendors happy. If not the market could easily shift in favor of other competitors like Living Social.
ReplyDeleteYour advise on the segmentation of Groupons customer market is very true. It would allow them to develop a brand image to compete against the numerous competitors entering the market. They should create a loyalty for the brand that would protect Groupon from better deals. As I mention in my blog (Internationalmix.blogspot.com)a good idea would be to develop the traveling segment. It would have a strong acceptance among consumers and the options would be broad.
ReplyDeleteI believe that social media like groupon is just starting out and has not reached its full potential yet. As a subscriber myself I know that in these hard economic times we still want our toys. If there is a way for us to band together to get our nice things for less we definitely will.
ReplyDelete6 millions to 25 millions? Could be possible, however, Groupon competition is growing and getting feisty! If in fact it is true that Groupon has manage to grow so rapidly, it might as well drop that fast now that others such as CoupTessa and Living Socials are out and about covering more territory and even offering sweeter deals. For example, Living social will give your deal for free if you get three friends to buy the deal. Not enough? Well, while Groupon shoots one daily deal, Living social bombards their audience with three!!! Good luck Groupon.
ReplyDeleteI believe that the nations economic hardship may even be helping Groupon grow stronger and faster since people want to still go out, buy and eat while they save, save, save!!! I'm curious about this trend and will keep my eye on Groupon's financial state once the economy starts to pick up!
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ReplyDeleteI think with todays bad economy everyone is willing to try just anything to save a buck. People's willingness to save is evident due to the unemployment rate and faint economic recooperation rate. Also the social media hype helps Groupon in their endevour.
ReplyDeleteGroupon has plenty of room to grow if it starts to microsegment its markets, offering particular Groupons to various market segments in each of the geographic areas that it serves. I have one of my How does groupon work business. It provide good services.
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