It was a good day for Groupon (GRPN +6.85%). Shares of the daily-deals dealer soared 23% on Friday as a rumor began to make the rounds: Google (GOOG +1.11%), which was reportedly rebuffed in its efforts to acquire Groupon two years ago for $6 billion, is ready for another go at the out-of-favor dealsmith, or so the chatter goes.
Don't believe it.
Granted, you can understand why people would lend credibility to the rumors:
- If Google liked Groupon at $6 billion, it should love Groupon two years later at $3 billion.
- Groupon's model has hit some rough patches lately, but it's still connected to 250,000 local merchants that Google would love to know a little better.
- Groupon went viral on the back of Facebook (FB +2.32%). The company gets voucher buyers to promote the deal through Facebook, promising that the voucher will be free if they can sway three of their Facebook friends to sign up. Google could use that viral gimmickry to its advantage by emphasizing Google+ sharing over Facebook. Think about it. Folks would actually start using Google+ with financial incentives.
- The rumored dealbreaker at the time was that Groupon wanted a stiff breakup fee, hoping to make a good chunk of change if regulators balked at the mammoth combination. Antitrust resistance doesn't seem as likely now that Groupon's flagship business is in a state of decline.
These may be encouraging reasons to push both companies together, but there are some other harsher realities.
I object to this sham of a marriage
Let's start with the obvious reason this isn't going to happen: Buying Groupon would crush Google's stock. Investors wouldn't see this as an opportunistic bargain for Big G. Groupon isn't trading 77% below last year's IPO at $20 by accident. Investors just don't like the company, and they don't like the niche.
Groupon's nearest rival, LivingSocial, just went through a round of layoffs. No one's viewing that as an opportunity for Groupon to gain market share, or a way for Groupon to pick off its competitor's top talent during a lull in morale. It's more like when Borders or Circuit City started to close stores. In short, the top dog is still in trouble.
LivingSocial is financially backed by Amazon.com (AMZN +1.93%). That's important. If the leading online retailer hasn't been able to steer LivingSocial toward sustainable success, it's not as if Google is holding the magical elixir to make daily deals work.
There's also the matter of Andrew Mason. Groupon's board retained the company's founder and CEO after reports surfaced two weeks ago that he was going to get booted. If he was let go, then it would open the door for an acquisition. Prospective buyers would sniff around ahead of the naming of Mason's permanent replacement. Retaining Mason is a fairly good indicator that the board is eyeing stability over sizzle.
The honeymoon suite is empty
Sure, there are other ways Google could milk Groupon.
Google's one of the many companies that have tried to take on eBay's (EBAY 0.08%) PayPal with uninspiring results. As Google Checkout morphs into Google Wallet without gaining real traction, eBay's transactional platform is booming, with 117.4 million active users and a recent push into bricks-and-mortar retail.
How would Groupon help here? Well, Groupon has been offering its merchant partners cheap credit card processing since rolling out Groupon Payments three months ago. That would fit in nicely with Google Wallet, and obviously the search giant could make its own luck by encouraging merchant payments to go through its system.
The value of Groupon's partner list alone is huge. We're talking about 250,000 Web-savvy merchants who are hungry for leads, and Groupon has been tiptoeing into offering enterprise solutions.
Still, the deal will never happen. The public isn't ready to accept Goopon or Grougle or whatever Brangelina abomination slang would result. Groupon is a smarter and better company than the market thinks right now, but Google would suffer too big a hit on its stock.
What a deal
Daily deals are no longer a lucrative niche, but there's a hot technology trend that's gaining momentum. There are only a handful of ways to play this booming industry, and a new report details the three stocks to own to profit from this revolution. Did I mention that it's a free report? Check it out now.
There are plenty of moving parts to Amazon.com these days beyond its minority stake in LivingSocial. A premium report on Amazon details the opportunities and challenges for investors. The premium research also comes with a free year's worth of updates.
