Google Likely to Purchase Groupon for $6 Billion

by Anthony John Agnello | November 30, 2010 3:44 pm

Internet marketing phenomenon Groupon is celebrating its second birthday this month, and Google Inc. (NASDAQ: GOOG) is rumored to be planning a buyout party to celebrate. Though reports today have included disclaimers that Google and Groupon are still in negotiations, the deal seems very likely to happen.

Given the Wall Street scrutiny given the company’s future in recent months, the deal isn’t much of a surprise. Google is the king of buyouts and Groupon seemed a likely acquisition target. The company’s web business, purchasing coupon promotions and discounts for retailers and services online en masse and targeting them at users based on location and profile details, has surged in the past 24 months and is perfect for harvesting by Google. Business has been so good—CEO Andrew Mason is projecting revenue of $500 million for 2010—that the company was able to raise $135 million this past April, giving the company an estimated value of $1.35 billion.

But it appears that Groupon is worth a whole lot more than that to Google Inc. According to New York Times blog DealBook, the Menlo Park, California company is poised to purchase Groupon for between $5 and $6 billion, with the deal set to close as early as this week. The Guardian reported earlier this month that Google had purchased Groupon for $2.5 billion though it appears now that that offer was rebuffed. The purchase would dwarf previous acquisitions made by Google over the past half-decade, including the infamous $1.65 billion purchase of Internet video website YouTube in 2006 and the $3.1 billion purchase of display ad company DoubleClick the year after.

Groupon’s business would be a feather in the cap of Google’s strong, established targeted advertising empire. The company’s massive growth of the past decade has been fueled as much by its contextual display and text advertising online as the licensing of its ubiquitous search technology. Incorporating Groupon’s existing userbase with Google’s Gmail service would multiply the business’ reach by a wide margin, not to mention the benefits it could offer to Google’s burgeoning mobile ad and app businesses on Android-powered smartphones. Groupon’s business model is also a proven revenue stream, so Google could easily avoid spending big on a non-earner as they did with YouTube four years back.

Yahoo! (NASDAQ: YHOO[1]) was rumored to be courting Groupon for acquisition last month, offering a purported $3 billion for the bulk promotions business, but were turned down in favor of Google. It’s unsurprising that Groupon chose Google over Yahoo!; in addition to Google’s significantly greater reach amongst users, it also has a great deal more cash to spend. Google revealed during its third quarter earnings report at the end of September that the company has $33.4 billion in cash assets, meaning that the time is now for major acquisitions. Venture capital groups Accel Partners, New Enterprise Associates, Digital Sky Technologies, and Battery Ventures are set to see an impressive return on their investment in Groupon.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

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