Groupon Is No Zynga

Groupon (NASDAQ: GRPN  ) reports on May 8, and investors are fearing the worst.

Groupon joins Zynga (NASDAQ: ZNGA  ) as two of the most famous busted IPOs of the late 2011 class. The dot-com darlings went public with plenty of hype, but both the daily deals leader and the top dog in social gaming have been meandering in the single digits in recent months.

In this video, longtime Fool contributor Rick Munarriz explains why Groupon deserves more respect. It's not Zynga, Rick argues, pointing out that Groupon is profitable, growing its top line, and has embraced industry changes to evolve into a viable business.

Agree? Disagree? Share your perspective in the comment box below after checking out the video.

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  • Report this Comment On May 07, 2013, at 5:25 PM, Unityboss wrote:

    You are right Groupon has 100.000’s of clients but what you forgot to mention is that those exist only “on paper”!

    Groupon has a business model that doesn’t work. It will never generate sustainable profits and it will burn the money that it has still on the bank, until it is obliged to file for bankruptcy.

    It has next to no repeat business because 95 % of its costumers are disappointed about the results and never will do business with Groupon again!

    Winning new clients requires very high acquisition costs and with the many sales people that Groupon employs in many markets, they have already contacted next to all possible prospects!

    Here in Europe, Groupon has a lot of negative press and many trade organizations and chambers of commerce strongly advice their members against doing business with Groupon! Merchants are fed up with Groupon.

    Groupon has a lot of legal actions against it, not in the least about infringing very important patents. Groupon business model is based on misleading costumers and stockholders with false and highly dubious information!

  • Report this Comment On May 08, 2013, at 10:33 AM, tchen389 wrote:

    Even so, GRPN has enough cash to sustain 18.5 quarters (4.6 years) of continuos losses of that magnitude. Moreover, it makes GRPN a high value take over target given that its current market cap is only $3.6 billion. Factoring in the $1.5 billion it has in cash (with no debt), paying $3.15 billion (based on a 50% buyout premium) for GRPN is quite an attractive investment. Remember Google had offered $6 billion for GRPN before the company went public. That a 90% premium ON TOP OF THE 50% buyout premium assumed above. Current market value of GRPN is $2.1 billion (after subtracting its $1.5 billion cash in hand). A company like GRPN is better off selling itself to a larger player like Google, Yahoo, or Amazon. Those companies already have ventures in the daily deals space and GRPN would bring a lot of synergies at a relatively low price. Once GRPN can prove itself to be cash flow positive for a couple quarters, companies will be bidding to gain from synergies. Long term, don't worry about the ebbs and flow. This could go from its current price of $5.39 down to $4 (but not much lower) to $8 (not much higher), but ultimately some sort of bid will take place for GRPN. It clear management does not have a clear idea of how/where to take this firm, but that doesn't mean there isn't plenty of value in GRPN for another (much larger) player.

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