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Comment by vaksel | Hacker News Reader

idiots...2 years from now, when all the businesses know what a bad value proposition Groupon is, they'll look back and kick themselves for not taking the offer

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Comments like this reflect more on their author than the startups and management teams they're about. Have you ever been inside a startup, and seen how one one-thousandth of the relevant information ends up in the press, and even then it's distorted? We don't even have more than rumor that this deal exists -- that should hint to you the quality of your information. These players aren't stupid. You have no idea how much you don't know here.

I would agree the devil is in the details because from the outside this doesn't seem to make sense.

Amen.

A lot of the talk is from people who (should) have low confidence in their predictions. Meaning, there's a 80% chance this is bullshit, but hear my out anyways.

Yes, many of the facts are wrong. The conclusions are wrong. So why should we still discuss?

First, it's fun. Like a sport for us to watch (and some to play :).

More importantly, though: Forcing yourself to open your eyes, stay engaged and keep an active mind about what's going on in the world. To practice thinking things through, even with limited information (you'll never have 100% information). This encourages curiosity - so you get more involved, ask questions, do research. Overall it helps you learn how the world works.

Your analysis is wrong; here's why. The founders, employees, and other insiders of Groupon have already been handsomely paid off. For them, Groupon represents a free option. If it sells for $6 billion, great! But what if in 12 months it could be worth $10 billion? That's $4 billion more! And, compared to a site like YouTube, Groupon looks like a much more stable deal. They're already immensely profitable (something YouTube never was, and still isn't). The $5.3 billion offer, as a multiple of revenue and profit, was a surprisingly cheap offer for Groupon!

Maybe Groupon will look back in 2 years with regret. Or maybe they'll have an offer of several billion dollars more. For the people in the position to make the decision, the risk is worth it.

Do you know somewhere else with as good a chance as Groupon of making several billion more dollars in a year?

I agree with you but your rhetorical question isn't right. If you're Gates with several dozen billions, it is trivial to "earn several billion more dollars"; But if it means I have a 50% chance of losing 10 billion and 50% chance earning 7 billion I wouldn't do it.

The same goes for groupon; From the outside it looks like the founders are risking their entire 5.3 billion for a mere 100% increase in a couple of years time. Of course, like other comments say, we know very little; but I do concur with the original comment saying it looks crazy.

TechCrunch reported they'll do 50m in profit this year, so it's not exactly cheap. If they were to stop growing it'd take 100 years for Google to get their investment back in cash.

The question is when they'll stop growing.

Can you (or anyone) elaborate on "The founders, employees, and other insiders of Groupon have already been handsomely paid off."? My understanding is that the handsome payoff comes when the company is either bought out or IPO's

Does anyone remember PointCast? In 1997, they rejected an acquisition offer of $450 million from News Corp. Two years later, they sold the company for $7 million.

http://en.wikipedia.org/wiki/PointCast_(dotcom)

Google's reported multi-billion dollar offer for Groupon seems like a pretty good deal for the company's founders, investors, and (presumably) employees.

Funny, the instant I read the headline, Pointcast came to mind.

Does anyone remember Facebook? In 2006, they rejected an acquisition offer of $1 billion from Yahoo. Four years later, they're clearly a juggernaut of social networking.

http://en.wikipedia.org/wiki/History_of_Facebook#Financials

There are far more Pointcasts than there are Facebooks.

But the existence of Facebooks depends on at least some founders believing that they're Facebooks, not Pointcasts.

Is that true? How would you know?

What's your point? How many Pointcasts there are and how many Facebooks there are is irrelevant. All that matters is whether groupon is a Facebook or Pointcast.

Or somewhere in between, but what really matters is who ends up making money in the transaction.

If there are more Pointcasts than Facebooks that would infer that it would be statistically more probable for this company to be overvalued than undervalued.

Pointing to outliers and using those as examples of good decisions doesn't seem very wise. Sometimes you get lucky and hit it big, that's how the game works. Sometimes that risk bites you down the road, a la Pointcast.

"Pointing to outliers and using those as examples of good decisions doesn't seem very wise."

It's wise if you are an outlier. And Groupon seems to be an outlier to me.

The implication is that it is far more likely that Groupon is a "Pointcast" than a "Facebook". But the statement that there are "far more Pointcasts than there are Facebooks" is impossible to falsify.

I don't think that's true, if you control for time. Can you think of other examples of startups that turned down acquisition offers in or around 2006 and are now regretting it?

1) Digg turned down an acquisition and regrets it. That was probably around 2006.

2) I'm pretty sure LinkedIn could have sold for a mighty sum in 2006. My guess is they're pretty nervous that Facebook will subsume them. They might wish they had sold back then for $1 billion or whatever.

3) Very speculative: Xobni, but that was 2008.

4) Technorati may have turned down an offer in late 2005 that they would definitely take today.

I'm not sure these prove anything, I just had fun trying to think of them.

I don't know of any offers LinkedIn or Technorati turned down, and I know Xobni doesn't regret turning down early offers.

I agree Digg got an offer they probably regret not taking.

people were and are still trapped with facebook. groupon users have absolutely no reason to be loyal to groupon.

you made a very important point. i hope more people see it.

You could probably take your pick of overvalued companies from the 1997-1999 dot com era. Even if we are in another boom period, Groupon has the revenue, growth, P/E, and market potential to justify the high price tag, unlike it's boom counterparts Twitter and Facebook.

If Facebook and Groupon both IPO'd tomorrow, something tells me Groupon would have the higher market cap, and without looking at numbers, my hunch is it would be the better long term investment too.

Remember, Facebook is already over the uncanny valley - they have 500 million users, and starting to enter a saturated market. Groupon is still relatively small and has a long way to grow.

If Facebook and Groupon both IPO'd tomorrow, something tells me Groupon would have the higher market cap...

Sorry, you're wrong.

Google purportedly just offered Groupon $5 billion. That's my best estimate of Groupon's probable market cap.

SecondMarket just did an auction of stock in a company whose sole asset are some shares in Facebook. Based on this, my best estimate of Facebook's market cap is $50 billion. (See http://www.pcmag.com/article2/0,2817,2373614,00.asp for more on that auction.)

Groupon also turned them down, so what does that mean?

I guess we'll just have to wait and see, huh?

Secondary markets don't mean anything, let's see if the big investment banks, pension funds, and the real market movers are going to appreciate Facebook's tiny margins and slowing growth.

Again, I don't have the numbers, and no one outside of direct involvement with Facebook (or Groupon) does either, but with the numbers being thrown around, Groupon has so far demonstrated much more capability for running a fast growing, profitable, high margin business.

If Facebook and Groupon both went public on Monday, Facebook would have a higher IPO. But in the space of a year or two, Groupon would have the higher market cap. Facebook's valuation is based on a lot of hype and not very much revenue potential. Groupon's valuation is far more likely to survive sober, realistic analysis outside of the Valley echo chamber.

Or the coupon thing is just a novelty that people will get tired of, for one of any number of reasons.

Little revenue potential? That's a crazy thing to say, anyone with 600 million users has a fairly decent revenue potential... Now what about when you know every single detail about those 600 million people's lives... HUGE revenue potential.

It doesn't matter how many users you have or how much information you have if you can't monetize it, especially when you have to categorically rule out all the obvious options (charge people money to use the service, sell people's private information) and other feasible options (sell devices designed to integrate with Facebook) are instantly shot down by the company's own efforts (free iPhone and Android apps).

Maybe Facebook will find a way to make tons of money, rather than merely tons of hype. As it stands, I bet the number of users they have represents high cost rather than high revenue potential. It's definitely too big to go away, but unlike Groupon, it also hasn't found a way to make tons of money yet, and no method to do that seems forthcoming.

well said but these deals tend to be more complicated than just the figures. google might have put in the conditions or groupon might have their own wishes.

When they raised money last time, most of the decision making folks(founders and such) cashed out already with $160M http://techcrunch.com/2010/04/15/the-rest-of-the-details-on-... So they are not in hurry

Looking from google's point of view, not sure how they would have answered their investors. 500M revenues -> 150M-75M income(assuming 30%-15% profit margin) http://www.businessinsider.com/what-are-groupons-real-number... that is a 12x - on revenue and 40x - on income. Just doesn't make sense.

It's been reported[1] that revenue is actually $2 billion, not 500MM.

[1] http://kara.allthingsd.com/20101203/exclusive-groupon-annual...

As mentioned in the article she is quoting gross merchandise sales not the gross revenue. As with groupon's business model, they pay ~70% of that to merchants.

Refer the first link from businessinsider.com on the estimations.

GOOG itself has a P/E of 23x [1]. 40x for a fast growing company is not crazy.

[1] http://www.google.com/finance?q=goog

as some of the people already mention, numbers were "leaked". There are too many incentives to make up sources (page views, manipulate google share price, to solicit more bids...)

revenues numbers are meaningless if you don't see the books for yourself. For example, a company can give 10 dollars to all new users. If this company has 35 million users, and takes in 30% of each transaction, that's 105 million dollars in revenues it can report. We wouldn't know.

Only the future will tell if it's a smart or stupid move. I think the article don't give an in-depth knowledge about the acquisition, thus, since we don't know the ins and outs, we can hardly decide/predict.

I also thought that it was a good offer, however, when I read that their earnings are at $2Bn and they have 3,000 employees.. that's already huge. They might have bigger plans, they know better the market and if they can double or triple their profits.

"$0.5Bn"

(Allegedly) That's just per quarter. So x4.

With $2 billion revenues that are likely to continue increasing YOY, it looks like an embarrassingly low offer.

http://kara.allthingsd.com/20101203/exclusive-groupon-annual...

"Likely to continue increasing YOY"? Says who? Groupon?

At least one compelling academic argument why Groupon's 'deal hawk' business model is not built for sustainable growth:

http://docs.google.com/viewer?a=v&q=cache:cpoGFpYf78oJ:w...

Could you elaborate?

The survey says that Groupon promotions are profitable for two thirds of businesses and three of five (of all businesses) would run another Groupon promotion again.

Hah, funny how such reason and logic didn't make it to the top of hacker news. Great link, thanks.

I bet you said the same thing about Facebook when it rejected that $1B Yahoo bid 4 years ago.

I did, actually, which is why I no longer trust my own opinion on these things.

On the surface, Groupon probably is not that bad of a deal for businesses compared to the cost of acquiring customers through local advertising. The problem is that businesses get a bunch of customers who buy once, and go away.

That's not a great value proposition for every business, but you would be surprised how many local businesses would take these deals any day of the week. Groupon will find its sustainable niche of businesses to work with, the bigger question is whether consumers will continue to flock to those particular deals.

I'm curious if you had the same opinion when they reportedly turned down a three billion dollar offer from Yahoo.

LoL )) i wish somebody call me idiot for refusing 6B deal. who are you to judge? dont u assume they know something you dont? all i can say these guys have balls to make such decisions.

I used to think the same thing when FaceBook rejected a billion dollar offer from Google, I believe. Boy, was I ever wrong!

was not that Yahoo?

Maybe it was Yahoo, sorry. I can't remember.

Thinking of Yahoo, why in the world doesn't Yahoo push Flickr as a social network? They certainly have all the tools in place (photo, video, users, groups, ads) that have always been superior to FaceBook.

Personally, I think Flickr could put FB to shame. Maybe the die hard photo fans wouldn't like it, but if you want to push advertising revenue I think they have a gold mine.

Yahoo! Anyone there listening?

As a user of both - dear God, no!

Flickr has a pretty large and pretty serious audience of users who at least regard themselves as proper photographers. A good portion of the (me included) pay for the pro accounts.

Flickr could, I'm sure, be tweaked a bit to let you more easily keep track of your friends other than through their photos - journals, one-line 'status updates', link sharing and the like. But how would this not alienate their already large and paying constituency of photographers, or their developing relationship with Getty as a supplier?

Honestly, I can't see how this would be a probable net win for Yahoo.

Maybe part of the problem is that they are in Chicago. Seriously. They aren't in the Silicon Valley ecosystem which if they were they would know that there are tons of scary smart people at well funded startups working lots of projects in their space. That might make they realize what they're up against.

I don't think a company needs to be located in the valley to know that there are "tons of scary smart people at well funded startups working lost of projects in their space"

There are lots of scary smart people all over the world. True, there are more scary smart programmers in SV. But that doesn't mean companies can't find them elsewhere.

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