At least as of right now, it looks like ditching the deal was a huge mistake.
Groupon hit another low Tuesday, dropping 27% to $5.51 — almost a quarter of its $20 pricing when the company went public in November — which puts its market cap around $3.6 billion.
So now that Groupon effectively is at a discount, and seemingly headed in the wrong direction, would Google do well to make another run at the daily-deals site?
I think so.
It’s no secret that Google wants to dominate the local e-commerce market. To this end, the company has made a pair of deals — one last September for restaurant rater Zagat, and another this week for travel publisher Frommer’s. These companies will provide valuable content that could form the basis of a strong e-commerce business.
No doubt, smartphones will be the focal point of local e-commerce, and Google has the advantage of its wildly successful Android mobile operating system. Google also has a strong voice recognition system and continues to invest in its mapping technologies.
So why does Google need Groupon?
For one, it’s the brand leader. LivingSocial has seemingly faded to the background, while Groupon has become the No. 1 operator in 37 countries, boasting 38 million customers.
A key to Groupon’s success is its massive sales force, which has a headcount over 12,000. Another critical factor is the company’s editorial department, which has over 500 people.
Groupon has been a laggard with its technologies — an area in which Google could be a huge help, especially when it comes to personalization and infrastructure.
And GRPN’s valuation certainly is attractive. After excluding its $1.2 billion cash hoard, the company is trading at about 1.25 times revenues — compare that to Amazon’s (NASDAQ:AMZN) multiple of roughly 2.
It’s nearly impossible to predict potential buyouts. In this case, Groupon’s management still might think it can find ways to regain its growth momentum and build more shareholder value. But the company has given little indication it’s headed in that direction.
Staying the course the first time might have been the right move, but Groupon should answer if Google comes a-knockin’ once more.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.