How Groupon Would Compare To Google’s Biggest Buys

1 Comment

Credit: Corbis

A weekly look at a trend in the news.

There’s some outrage that Google (NSDQ: GOOG) may pay as much as $6 billion for Groupon. Forrester Analyst Sucharita Mulpuru, for instance, called that valuation “absurd” for a company in a business “with virtually no barriers to entry” and “younger than my toddler.” But, as the NYTimesEvelyn Rusli noted earlier this week, the deal may, in fact, be a “bargain” — price-wise — when compared to some of the company’s other big acquisitions, none of which, by the way, has been a flop. Remember that YouTube deal? Well, Google paid more than 100 times sales for it.

Rusli cites a source who says Groupon’s “revenue is running in excess of $1 billion a year.” Analysts have pegged the company’s revenue at roughly $600 million. That means Google would be paying between six and 10 times sales for the daily-deals company. Google’s purchase of DoubleClick was also within that range, Rusli notes.

The idea of a very generous premium, however, extends to all of Google’s biggest acquisitions. Here’s the rundown:

Doubleclick

The price:

In April 2007, Google purchased DoubleClick, which had been founded in 1996, for $3.1 billion. The company had generated $300 million in revenue the year prior, meaning Google was paying about 10 times the company’s revenue.

The payoff:

The deal was designed to boost Google’s display business. Last October, executives said that display-ad sales, a category that also includes YouTube, were now at a $2.5 billion annual run-rate. DoubleClick itself has gone through a number of changes since the purchase, including a tie-in with AdWords and, most recently, an upgrade in February.

YouTube

The price:

Google paid $1.65 billion for YouTube in October 2006. That company had been founded only 19 months before and had only started generating revenue in December 2005. In fact, its total revenue in 2006 was $12.9 million, meaning Google paid a staggering 127 times that year’s revenue for the video site.

The payoff:

While Google still won’t say whether YouTube is making any money, it’s expected to generate $700 million in revenue this year and has made Google the undisputed leader in online video.

AdMob

The price:

Google bought then three-year-old AdMob for $750 million in stock last fall. IDC put AdMob’s revenue that year at $31 million, meaning Google paid about 24 times the company’s annual sales.

The payoff:

It’s too early to tell but Google has said its mobile ad sales are now at a $1 billion “annualized run rate.”

ITA Software

The price:

The company is trying to buy travel software firm ITA Software for $700 million. I couldn’t find any recent revenue estimates for the 14-year-old company, but sales were reportedly roughly $80 million in 2007, which would seem to put the multiple within the Groupon range.

The payoff:

Too early to say, since the deal isn’t done. It’s pending regulatory review.

Postini

The price:

Google bought Postini, which had been founded in 1999, for $625 million four months after it bought DoubleClick. Sales at the security-services company were estimated at $110 million, meaning the price tag was about six times the company’s sales.

The payoff:

It’s hard to isolate, because Google tied Postini’s security features into the enterprise version of Google Apps. In May, Google said that business would generate $1 billion in sales within “three or four years.”

1 Comment

Lenley

Great post!
Analysts should take a look at the metrics of the deal and just as important, Google’s historical acquistion strategy rather than just the absolute price.

Comments are closed.