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Google’s stock is off down nearly 4 percent today. It could be off because of news that the European Commission is opening a formal antitrust investigation into claims that the company abuses its search dominance or reaction to the NYTimes’ report that Google (NSDQ: GOOG) is close to finally purchasing Groupon in what would be its biggest acquisition to date. If it’s the latter, though, Wall Street analysts don’t seem to be very concerned about the reported $6 billion price tag. In a series of reports today, they say it’s a good deal. Read on for a sampling of some of the commentary.
— Douglas Anmuth, Barclays Capital: The acquisition makes “a lot of sense,” Anmuth says, adding that he’s changed his mind about the necessity of the deal since reports of ongoing talks between the two companies first surfaced several weeks ago.
“We think the potential deal can be complementary for Google and be a key factor in its mobile, local, and social ambitions. Groupon could provide Google direct access to merchants around the world and change the way local deals are delivered going forward, in our view,” he says. Anmuth adds that he thinks Groupon’s revenue will total $1.5 billion in 2011, up from $600 million this year, meaning that Google will be paying a revenue multiple of 3.7 times.
— Mark May, Needham & Co.: “We view this as a large and sustainable new online category, which bridges opportunities in local, social and mobile, and believe concerns about low entry barriers are overstated, (with) network effect benefits already evident from our discussions (with) competitors,” May says. “Strategically, we think the fit works on several levels and that Google could enhance both Groupon’s revenue and profit profile.”
— Ben Schachter, Macquarie: The WSJ quotes a report by Schachter, who says a Groupon acquisition addresses two “key threats” facing Google: social media and disintermediation (cutting out the middleman).
“On a purely financial basis, it’s difficult to rationalize the valuation (given what we view as lack of competitive barriers to Groupon’s model and questions about its sustainability), however we believe GOOG’s rationale is much more strategic,” he writes. “This is about much more than GOOG generating revenue from emailed coupons; it’s about GOOG’s ability to potentially access and utilize the social graph for eCommerce.”
We’ll add to this list as we receive more reports today.