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Analysts: Groupon Is A Good Deal For Google — Even If It Costs $6 Billion

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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.

4 Responses to “Analysts: Groupon Is A Good Deal For Google — Even If It Costs $6 Billion”

  1. Smart thinker,

    Google is not good at building “brands” so it makes sense for them to buy out a well established one. In addition, keep in mind that Groupon is selling itself and the price may be more reflective of Google denying others the chance to acquire Groupon.

  2. Smart thinker

    Doesnt make any sense. Groupon bought their audience from Google. Google doesnt need Groupon’s audience, they just need a group buying platform and infastructure and then they can drive their own eyeballs to it. Why would they buy back their own audience from Groupon for 6 billion dollars? If Google is smart and I know they are, they will buy the number 3 or 4 player in the space that has a platform but not the audience. Then after they aquire it, Google can use their tremndous resources to drive more users to it then groupon could ever hope to get at a reasonable CPA. This would also deflate Groupon’s valuation by highlighting that they only important thing is being able to scale their audeince part of it.