Armed with a fat bankroll and a lack of organic growth, Yahoo!'s
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
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
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.
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