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Google to Buy Groupon


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Wendy Tanaka





Google-Groupon: Price Too High?

Nov. 30 2010 - 1:15 pm | 1,304 views | 0 recommendations | 0 comments By WENDY TANAKA


The NY Times reports that Google is close to acquiring online coupon discount site Groupon for $5 billion to $6 billion. Naturally, analysts are pouring out with opinions on what could be the search giant’s largest deal to date.


Ben Schachter of Macquarie Securities says in a research note that the deal makes sense strategically but thinks it’s too pricey.


On a purely financial basis, it’s difficult to rationalize the valuation (given what we view as lack of competitive barriers to Groupon’s model and questions about its sustainability), however we believe GOOG’s rationale is much more strategic. This is about much more than GOOG generating revenue from emailed coupons; it’s about GOOG’s ability to potentially access and utilize the social graph for eCommerce.



Ned May of Outsell Inc. isn’t convinced Google can leverage Groupon’s strengths.


This is about Google trying to secure its future as the current state of the keyword search market nears maturation. Its investments around mobile – notably the Android operating system – have begun to pay off and likely will result in a win. But given the size of the company today, Google needs more than one win to even approach the growth it has experienced in the past. While they also have their eye on display advertising, they are clearly making a push to local advertising, as well. The problem with this latter category, though, is it is much less of a technology problem and much more of a people problem. While there are synergies in building out a display business and a coupon business, these are not core strengths of Google. Buying their way in is likely the only way they’ll get there though success afterward is in no way guaranteed.



Shares of Google fell about $20, or 3%, in midday trading Tuesday.

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