Tuesday, March 08, 2011

Is Groupon Really Being Mentioned Alongside Google and Facebook?

There have been a host of articles recently feeding into the hype-machine behind Groupon. Analysts on CNBC have mentioned the site in the same breath as Google and Facebook when discussing "the giants of the internet sector". The question... is this warranted?

It actually might be, depending on how you frame the question.

Groupon isn't generating anywhere near the revenue amount of, say, Google. So in that sense, today, Groupon doesn't belong in the conversation. However, Groupon is indeed mirroring the growth of companies like Google, Yahoo, Amazon and eBay in their first two years of existence. So in the context of early growth, Groupon actually might belong.

Consider some comparative data on revenues and valuations...

  • Facebook - Recently valued at $50 billion. Revenue rocketed to as high as $2 billion in 2010, its sixth full year.

  • Twitter - Recently valued at $3.7 billion, and just closed a $200 million round of financing.

  • Groupon - Revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Also, just raised an additional $950 million in financing after rejecting a $6 billion buyout offer from Google.

  • Zynga - The maker of online social games like FarmVille scored revenue of $850 million in its third full year in 2010, more than triple the year before.

As the Wall Street Journal highlighted, if we compare all of this with the software industry, less than one-third of the nation’s top software companies reached $50 million in annual sales in six years or less – and the fastest to $50 million, Novell, took three years. Microsoft crossed the $50 million barrier in eight years; Oracle, 10 years.

Groupon is indeed a trendy pick at the moment based on those early growth figures, and only time will tell whether or not it has real staying power. To my eyes, it's surely not yet deserving of Google or Facebook comparisons, and ought to be more reasonably compared to other speculative trendy internet picks like FourSquare.

What do you think? Are these valuations justified or has another internet bubble emerged?


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