The median value is 3X-7X increment in revenue per user. In the scenario, where the user base does not increase and is held constant at 35 million, Google will have to generate 8X in short term and 6X in long term for a break even. Presently Groupon generates $500 million for 35 million subscriptions which translates to $15 revenue per user.Īssuming Google has the ability to ramp up the user base of Groupon to 100 millions in a short period Google will have to generate 3X of present revenue for a short term realization of break even and 2X multiple of revenue for short term realization of break even. The derivative is the revenue generated per user. Given below is a very simplified break even analysis for Google’s investment on Groupon basis number of years and incremental subscriptions. This would thus be a pre-emptive move against competition expected from Amazon (Is rumoured to be acquiring Living Social) and Facebook (Rumoured to be launching its own Local Ads product).īut isn’t $6 billion an overkill for a 35 million user base (That Groupon has)? Site traffic at Groupon indicates the month traffic to be around 10-15% of the 35 million number. Google will try and leverage Groupon’s strengths in local advertising in the US and Canada geographies. Yelp is a commerce portal which does the rating of local retailers in an area.
That has been the case with Google who had earlier made an unsuccessful attempt at acquiring Yelp. While Google Adwords has been the cornerstone for building the internet business model, Adwords has not particularly been successful for local advertisers.Treating users and consumers with targeted ads based on their personal and social profiles has been successful on a large global scale, but Adwords has tasted only limited success with local advertisers.
This post is about Google’s perspectives on the deal. Is their something about Groupon and this deal that we are missing, which is what Google is paying do much for. However, this is Google we are speaking about. In an earlier post, i had discussed, how a $6 billion tag for Groupon appears to be a stretch in Valuation by fair and logical means.
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