Can Groupon or LivingSocial Be Stopped?

It's good to be a leading group-buying website these days.

LivingSocial raised $400 million in new financing last week, according to New York Times' DealBook. The new round values the country's second largest social coupon website at more than $3 billion.

Just four months ago, Amazon.com (Nasdaq: AMZN  ) led a smaller round at a presumably much lower valuation. This time around Amazon.com is being joined by T. Rowe Price (Nasdaq: TROW  ) and new venture capitalists in bankrolling LivingSocial's heady expansion efforts. An IPO can't be too far away.

It's not just LivingSocial closing in on its Wall Street debut with healthy momentum.

I wasn't the only one scoffing at Groupon for rebuffing Google's (Nasdaq: GOOG  ) seemingly ridiculous $6 billion buyout offer late last year. Boy, was I wrong. These days the IPO chatter and secondary market trades find Groupon being pegged with a whopping $25 billion price tag.

Patience has paid off for Facebook, Twitter, Groupon, and any other dot-com darling that has thumbed its nose at buyout offers that seemed generous at the time but too low in retrospect.

The challenge here is for Groupon and LivingSocial to keep growing. Juicy margins and feeble moats have attracted more than just upstarts. AOL's (NYSE: AOL  ) Wow.com and CBS' (NYSE: CBS  ) CBSLocal.com have hopped on the bandwagon in recent months. Travel deals publisher Travelzoo (Nasdaq: TZOO  ) and dining reservations leader OpenTable (Nasdaq: OPEN  ) have seen their shares skyrocket since embracing the pre-paid voucher model for discounted offers within their respective niches.

Will crowding lead to confusion or a shakeout? Will the viral nature of hot deals backfire when good offers go bad? Will non-discounting merchants find a way to fight back before they lose more business?

Then we have the biggest question of all for prospective investors: Will LivingSocial and Groupon manage to pull off their IPOs before they peak?

Are you looking forward to the inevitable Groupon or LivingSocial IPO? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value pick. Google and OpenTable are Motley Fool Rule Breakers recommendations. Amazon.com is a Motley Fool Stock Advisor pick. The Fool owns shares of Google and T. Rowe Price Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has already seen one of the Groupon deals he purchased go belly up. The site quickly refunded his money. Since there doesn't appear to be a lot of consumer advocacy in this niche, he just launched GroupOffed.com as an industry watchdog blog. 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.


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  • Report this Comment On April 05, 2011, at 3:27 PM, catoismymotor wrote:

    Both will be in decline in the next three to five years as the next great thing emerges from someone's college dorm room.

  • Report this Comment On May 11, 2011, at 12:51 AM, rasmusrefer wrote:

    i don't forsee these giants to be stopped but i m also forseeing a threat to them by http://masterseek.com it provides quick and free access to, among other things, company profiles, contact information, and descriptions of products and services from more than 45 million companies in 75 countries.

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