Google-Groupon Deal Hits the Rumor Mill

A deal makes sense, but logic doesn't make 'em happen

   

Groupon (NASDAQ:GRPN) jumped out of its doldrums last Friday, soaring 23% on a Bloomberg report that — of all things — Google (NASDAQ:GOOG) is considering a bid for the company.

Google’s first time courting Groupon was in late 2010, when the search giant offered $6 billion, but the daily-deals site instead decided to go public. In hindsight, that rejection seems like a poor decision, as GRPN shares have plunged by almost 80% in the past year.

So why would Google still be interested? After all, Groupon’s core daily-deals business has rapidly deteriorated, with the growth rate in quarterly revenues shrinking from 185.6% to 32.2% in the past year.

Google should also be wary of Amazon‘s (NASDAQ:AMZN) foray into daily deals business with its disastrous investment for LivingSocial. If this e-commerce giant can’t make it work, why would Google be able to?

Well, Google’s rationale for a buyout actually might have little to do about the daily-deals business.

Instead, the company realizes that to be successful with local e-commerce, it needs a massive sales force. That’s where Groupon comes in. GRPN has a sales force of roughly 6,000 managing a merchant customer base of 250,000.

Thus, if Google acquired Groupon, it will be in a great position to aggressively roll out its services, such as Wallet, Android apps and advertising, as well as make the most of other properties like Frommer’s and Zagat. In total, the local commerce market is about $3 trillion (according to a Groupon investor presentation) — enough to make it worth Google’s while.

That said, it doesn’t mean a deal is imminent. The Bloomberg story did not name any sources, leaving some doubt as to how real the possibility is. Investors are starting to sober up to that reality, with shares down about 7% off in Monday trading.

But hey — whenever a stock falls on hard times, you can’t avoid the M&A rumors.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


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