Groupon’s Valuation – The 30 Billion Dollar Question

Regarding Groupon and it’s valuation, I agree with many of the concerns that Diane Mermigas brings up in her On Media post, “Is Groupon an Overvalued One-Trick Pony?” With the economy doing what it is doing and the opportunities for competitors to reproduce the mechanics easily and quickly, Groupon could very easily be (and most likely, is) overvalued.

One of the beautiful things about the speedy entry of Groupon into the market was its simplicity, but that could certainly cause trouble in the long-term.  The thing is, having 83 Million users – and growing – is nothing to shake a stick at.  It seems that Groupon understands that and is spending a dramatically high amount of money on advertising, awareness, retention and registration – effectively to keep growing at a pace that nobody can catch up to.

Unfortunately, the power of that 83M number is seemingly lost in Mermigas’ post as it relates to marketing opportunity for businesses.  Whether it is because Groupon doesn’t do a good enough job in espousing that reach as a resource to introduce your brand or product to fresh eyes and expand the base, or analysts aren’t looking at that when considering the dollar value, I don’t know.  There are many items and experiences that Groupon – and their competitors’ users would not have known about or tried had it not been for this.  I don’t believe that Mermigas downplays that power and realize that this particular post’s posit is about valuation, but the relevance of that marketing value must be a part of the valuation picture.

When bringing up the possible shift to brands only offering steep discounts to their own apps greatly contrasts that 83MM+ opportunity to grow your base. Additionally, the downgrading of value in the 18-34 female demo due to their less likely income goes directly against the reason for discounts to be there – not to mention that prime target age in fostering brand/product affinity and loyalty. My how things have changed since that demo was the ultimate demo to reach…

So, yes.  Groupon is seemingly overvalued, but some of its key components should not be pulled from the equation of what makes it a success. Those exclusions add back some of the value that was deemed lacking.  If meticulous exclusion applies, then it draws all valuations into question.

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