Will Yahoo! Get Its Groupon On?

Armed with a fat bankroll and a lack of organic growth, Yahoo!'s (Nasdaq: YHOO  ) next acquisition may be web sensation Groupon.

Sources tell BoomTown's Kara Swisher that Yahoo! is angling to buy the leading social coupon site.

If it goes down, the deal won't come cheap. Groupon's valuation ran close to $1.4 billion in a recent round of financing. However, a buyout could be a win-win if the price is right.

Groupon has exploded on the scene, thanks to its business model's sheer simplicity and chunky margins. Sponsors pay Groupon as much as 50% of discounted vouchers for restaurants, spa treatments, and leisurely outings. Advertisers attract new customers, and prospective patrons get a sweet deal.

Unfortunately, Groupon's success hasn't gone unnoticed. Early competitors include Living Social and BuyWithMe, but now bigger fish are jumping into the water. Travelzoo (Nasdaq: TZOO  ) , The Knot (Nasdaq: KNOT  ) , OpenTable (Nasdaq: OPEN  ) , and Yelp have all announced Grouponesque initiatives. AOL (NYSE: AOL  ) is about to dive in, repositioning its Wow.com domain as a daily deal website. 

In other words, Groupon has enough copycats nipping at its heels -- each with a niche appeal that its more general promotions lack -- to make the company ponder an exit strategy. Selling out wouldn't necessarily mean that Yahoo! gets left with a peaking company. Yahoo! has the dot-com muscle and fat advertiser Rolodex to take Groupon to the next level.

The timing is right on both fronts. Yahoo! needs something to excite investors. Second-quarter revenue grew a mere 2% over the past year. Groupon is also starting to receive some criticism, from both sponsors who feel that the Groupon experience only smoked out one-time penny pinchers, and buyers who have overwhelmed small merchants. As sharp as Groupon's growth trajectory has been, it may be about to bump into the kind of growing pains that Yahoo! could help navigate.

Given the likely 10-figure price tag, any kind of bidding competition would be limited to Google (Nasdaq: GOOG  ) and Microsoft (Nasdaq: MSFT  ) . They may both be tempted to just let Yahoo! score this one -- though it wouldn't be a surprise to see both of them jump in if just one of them shows any interest.

If Yahoo!'s making offers, Groupon can't afford to ignore them. If rebuffed, Yahoo! might simply follow AOL's lead and launch its own Groupon clone. The risk that advertisers will awaken to the poor economics of selling dollars for quarters means that time isn't exactly on Groupon's side here. No investor wants to wake up in a few months to see Groupon itself selling at a scandalous discount.

Have you ever used Groupon or a Groupon-esque site for a deal? Share your thoughts in the comment box below.

Google and Microsoft are Motley Fool Inside Value picks. Google, The Knot, and OpenTable are Motley Fool Rule Breakers recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz is a fan of discount sites, and he's already tracking local deals through Groupon and LivingSocial. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 11, 2010, at 12:00 PM, vijaymiriyala wrote:

    "f Yahoo!'s making offers, Groupon can't afford to ignore them. If rebuffed, Yahoo! might simply follow AOL's lead and launch its own Groupon clone."

    Well said. I am a long time Groupon user and now i barely visit the site. It is just because i don't have much time to visit these kind of sites and don't want to wait for next day to use the discounted coupon. Groupon has many users and will grow, but i am not sure how long the growth would be as i already stopped making frequent visits to Groupon few months ago.

  • Report this Comment On October 11, 2010, at 1:43 PM, SpotBanks wrote:

    Yahoo could easily attack Groupon and create yet another clone. But do we really need another company telling us what we should pay for something or what it is we are going to buy? Consumers need to make change and start driving the direction of products and offerings in their own communities and stop accepting the take-it-or-leave-it demands of business.

    Look us up. SpotBanks

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1327929, ~/Articles/ArticleHandler.aspx, 10/23/2014 5:05:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement